Oil cools after 3-day rally amid Fed uncertainty, U.S. inventory build

By Ambar Warrick

Investing.com -- Oil prices were muted on Thursday as hawkish comments from Federal Reserve officials supported the dollar and brewed some concerns over more interest rate hikes, while U.S. crude inventories also logged a seventh straight week of builds.

Hawkish overnight comments from Federal Reserve officials saw markets reassessing their outlook for U.S. interest rate hikes this year, given that inflation is still trending well above the central bank’s target range.

This bolstered the dollar, which in turn weighed on crude markets. The prospect of higher U.S. interest rates also bodes poorly for oil, given that the ensuing slowdown in economic activity could further hamper demand.

Fears of a more hawkish Fed were back in play after stronger-than-expected U.S. jobs data rattled crude markets last week.

Brent oil futures steadied at $85.19 a barrel, while West Texas Intermediate crude futures rose 0.1% to $78.58 a barrel by 20:50 ET (01:50 GMT). Both contracts were up as much as 6% over the past three days, and were trading near two-week highs.

Optimism over a demand recovery in China and supply disruptions caused by an earthquake in Turkey and Syria spurred strong gains in crude prices this week. The International Energy Agency had earlier this week reiterated its forecast for a strong recovery in Chinese demand this year.

While some pipeline flows from Iraq to Turkey resumed after being stopped earlier this week, exports from the major Ceyhan port are yet to be resumed amid bad weather conditions. The trend heralds a near-term supply shortage in flows to parts of Europe and Israel.

But this was in turn offset by fears of a supply glut in the U.S., the world’s largest oil consumer. Government data showed on Wednesday that U.S. oil inventories grew for a seventh consecutive week, with rises in gasoline and distillate stockpiles indicating that retail fuel demand remained weak.

Focus is now on a series of inflation readings from major economies in the coming days, starting with China on Friday. Markets will be closely watching to gauge whether price pressures improved in the country after it relaxed most anti-COVID measures earlier this year.

U.S. inflation data due next week is expected to inform monetary policy in the coming months.