Oil prices edge lower, set for weekly losses as Fed fears weigh

By Ambar Warrick

Investing.com -- Oil prices fell slightly on Friday and were set to close the week lower as concerns over rising U.S. interest rates and a strong dollar largely offset optimism over a potential recovery in Chinese demand.

U.S. producer price index inflation read higher than expected for January, coming on the heels of a red-hot consumer price index report that indicated that inflation will likely remain stubborn in the world's largest economy.

The readings, coupled with hawkish overnight comments from Federal Reserve officials, pointed to more interest rate hikes in the coming months - which markets fear could stymie economic growth this year and weigh on crude demand.

Brent oil futures fell 0.1% to $84.55 a barrel, while West Texas Intermediate crude futures fell 0.7% to $77.97 a barrel by 21:13 ET (02:13 GMT). Both contracts were set to lose between 1.5% and 2% this week.

The dollar surged overnight as Fed officials James Bullard and Loretta Mester both talked up more interest rate hikes by the central bank, which in turn weighed on crude prices. Strength in the dollar makes crude more expensive for international buyers, denting global oil demand.

Oil prices were also dented earlier this week by the Biden Administration’s planned sale of 26 million barrels of crude from the Strategic Petroleum Reserve. This, coupled with data showing a substantially bigger-than-expected build in U.S. crude inventories, pointed to a potential U.S. supply glut in the near-term.

The negative supply and monetary policy cues largely offset optimism over a recovery in Chinese demand, which had offered crude prices some respite this week. Oil markets saw volatile swings in recent sessions as markets weighed a more positive demand outlook against signs of near-term strife.

Both the Organization of Petroleum Exporting Countries and the International Energy Agency hiked their demand forecasts for the year, with a recovery in China set to drive over 50% of oil demand this year.

China also outlined additional spending measures this week, as it moves to shore up economic growth after three years of COVID lockdowns.

But economic data from China has been somewhat middling, even after the country relaxed most anti-COVID measures earlier this year. Oil bulls are now holding out for more consistent signs of an economic recovery in the world’s largest oil importer.