Oil: Brent hangs by a thread to $80 support on U.S. rate hike fears

By Barani Krishnan

Investing.com -- The drone over inflation and interest rates and what more punitive action the Federal Reserve might have for markets pushed oil to another round of selling on Wednesday that saw Brent hanging precariously to the $80-per-barrel support.

Several policy-makers at the Fed’s Federal Open Market Committee, or FOMC, advocated raising interest rates by 50 basis points before it reached a consensus for a 25-basis point hike on Feb. 1, minutes of the meeting published by the central bank on Wednesday said.

After four back-to-back hikes of 75 basis points between June and November, the FOMC resorted to slowing the pace of its rate increases over the past two months, beginning with a 50-basis point hike in December. 

But after recent economic data showing U.S. inflation still too high for anyone’s liking, policy-makers have increasingly said outright — or at least hinted — that February’s 25-basis-point rise was too little, and perhaps, a doubling of that was needed when the FOMC sat again on March 22.

“Oil is still feeling heavy as energy traders anticipate a hawkish Fed will contemplate larger rate hikes that will likely send the U.S. economy into a recession,” said Ed Moya, analyst at online trading platform OANDA.

“Energy traders not only have to keep up with all the latest supply and demand drivers, but also on how much the dollar might rebound given the Fed’s tightening path. Oil will likely remain heavy here.”

Brent for April delivery settled down $2.45, or 3%, at $80.60, after a session low of $80.48. The global benchmark for crude is down 3% for the week, extending last week’s 4% drop.

New York-traded West Texas Intermediate, or WTI, saw its March delivery contract settle down $2.41, or 3.2%. at $73.95 per barrel, after a session low of $73.86. The U.S. crude benchmark was also down 3% week-to-date after last week’s slide of 4%.

Market participants were also on the lookout for U.S. weekly oil inventory data, due after market settlement from API, or the American Petroleum Institute.

The API will release at approximately 16:30 ET (21:30 GMT) a snapshot of closing balances on U.S. crude, gasoline and distillates for the week ended Feb. 17. The numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Thursday.

For last week, analysts tracked by Investing.com expect the EIA to report a crude stockpile build of 2.083 million barrels, versus the 16.283M barrel jump reported during the week to Feb. 10.

On the gasoline inventory front, the consensus is for an increase of 108,000 barrels over the 2.317M-barrel rise in the previous week. Automotive fuel gasoline is the No. 1 U.S. fuel product.

With distillate stockpiles, the expectation is for a drop of 1.126M barrels versus the prior week’s deficit of 1.285M barrels. Distillates, which are refined into heating oil, diesel for trucks, buses, trains and ships and fuel for jets, have been the strongest component of the U.S. petroleum complex in terms of demand.