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Oil traded lower on Wednesday, with U.S. crude futures headed for a sixth consecutive session decline, pressured by expectations that aggressive interest-rate hikes by the Federal Reserve could lead to a recession and hurt energy demand.
Traders awaited the minutes of the Federal Reserve’s first policy meeting of 2023 for signs of the central bank’s rate path. The minutes will be released about a half-hour before U.S. oil futures settle for the session.
Price action
-
West Texas Intermediate crude for April delivery
CL.1,
-2.51% CLJ23,
-2.51%
fell $1.46, or 1.9%, to $74.90 a barrel on the New York Mercantile Exchange with prices headed for a sixth loss in a row. That would be the longest streak of losses for a front-month contract since early December, FactSet data show. -
April Brent crude
BRNJ23,
-2.31% ,
the global benchmark, was down $1.57, or 1.9%, to $81.48 a barrel on ICE Futures Europe. May Brent
BRN00,
-2.14% BRNK23,
-2.14% ,
the most actively traded contract, was off $1.37, or 1.7%, at $81.40 a barrel. -
Back on Nymex, March gasoline
RBH23,
-3.10%
fell 2.5% to $2.356 a gallon, while March heating oil
HOH23,
-2.51%
ticked down 1.1% to $2.7613 a gallon. -
March natural gas
NGH23,
+5.93%
rose 5.6% to $2.189 per million British thermal units after dropping 8.9% on Tuesday to settle at the lowest since September 2020.
Market drivers
“The oil market still has a recession obsession,” said Phil Flynn, senior market analyst at The Price Futures Group. “Oil prices were under pressure as rate fears are raising larger concerns of oil demand destruction.”
However, there are signs that show “just the opposite,” he said. Not only did the Joint Organisations Data Initiative on Tuesday say that global oil demand hit an all-time high in December, but at least one Fed official said the market is too pessimistic on the outlook for the economy, said Flynn.
St. Louis Fed President James Bullard on Wednesday told CNBC in an interview that the markets have “overpriced a recession in the first half of 2023 and maybe they are overpricing the chances of a recession in the second half of 2023.”
“If that is the case, then oil is very underpriced,” Flynn. said.
Still, oil futures have struggled in February as Treasury yields have risen on expectations the Fed will need to hike rates more than previously expected to rein in inflation. Rising yields also provide a lift for the U.S. dollar, which makes commodities priced in the unit more expensive to holders of other currencies.
Oil fell Tuesday alongside a rout in U.S. stocks, which saw the Dow Jones Industrial Average
DJIA,
wipe out 2023 gains as major indexes suffered their worst day of 2023.
Investors on Wednesday awaited the 2 p.m. Eastern release of minutes of the Fed’s Jan. 31-Feb. 1 policy meeting for clues to the size and scope of future rate increases.
“Markets continue to come to terms with expectations of a more hawkish Fed, following a raft of economic data suggesting the Fed still has quite a bit of work to do,” said Warren Patterson and Ewa Manthey, commodity strategists at ING, in a note.
“These headwinds, combined with a fairly comfortable oil balance, mean that the oil market will likely remain rangebound. However, we see the market breaking out of this range later in the year as the oil market significantly tightens,” they wrote.
Weekly U.S. petroleum supply data from the Energy Information Administration will be released on Thursday, a day later than usual due to Monday’s Presidents Day holiday.
Estimates from Robert Yawger, director of energy futures at Mizuho Securities U.S.A., showed expectations for supply gains for the week ended Feb. 17 of 3 million barrels for U.S. crude, 2 million barrels for gasoline and 1 million barrels for distillates.
Last week, the EIA reported a 16.3 million-barrel rise in crude stocks for the week ended Feb. 10. The data included an upward adjustment to supplies.
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