Oil prices dip as rate hike jitters rise before payrolls data

By Ambar Warrick

Investing.com -- Oil prices fell further on Friday as markets awaited labor market data for more cues on U.S. monetary policy, although fears of rising interest rates and disappointing data from China put crude on course for steep weekly losses.

The Federal Reserve became a key point of focus for oil markets this week, after hawkish signals from the bank’s top officials battered crude prices with the prospect of higher interest rates. Markets grew fearful that a potential U.S. recession, triggered by tighter monetary conditions, could wallop oil demand this year.

High inflation and strength in the jobs market have been the two key drivers of the Fed's hawkish rhetoric, with focus now turning to nonfarm payrolls data for February, due later in the day.

While the reading is expected to have retreated sharply from January, any signs of resilience in the jobs market give the Fed more headroom to keep hiking rates. Nonfarm payrolls have also consistently topped estimates for the past 10 months.

Brent oil futures fell 0.4% to $81.25 a barrel, while West Texas Intermediate crude futures fell 0.6% to $75.25 a barrel by 22:38 ET (03:38 GMT). Both contracts were set to lose about 5% this week, their worst week since late-January.

Expectations of higher interest rates boosted the dollar, which weighed on commodities priced in the currency, chiefly oil. A stronger dollar also makes oil more expensive for international buyers, which hurts demand.

Weak economic signals from China also upset oil markets, as the world’s largest oil importer logged a drop in oil imports in the January-February period.

Softer-than-expected inflation data from the country pointed to a staggered economic recovery after the lifting of anti-COVID measures, weighing on bets that a rebound in China will drive oil demand to record highs this year.

While the country saw a strong rebound in business activity through February, this has yet to translate into increased demand for crude and other commodity imports.

Pessimism over the Fed and China saw oil markets largely trade past signs of a potential tightening in supply.

Data earlier this week showed that U.S. crude inventories unexpectedly fell in the past week, after 10 straight weeks of builds. Major U.S. oil executives also said that production in the country had likely peaked.