Oil dropped of a massive surge in crude stockpiles, as well as the US Federal Reserve’s inferences that rate hikes will continue, which devastated the risk-on sentiment which had been prevailing earlier in the day.
After swinging more than $2 throughout the session, West Texas Intermediate settled below $69. After US stockpiles rose 7.92 million barrels, and inventories at the storage hub in Cushing Oklahoma surged to their highest level since 2021, prices reversed earlier gains. Many Wall Street banks have cut their estimates on oil prices, based on perceptions that stockpiles will rise, and outweigh demand.
Interest rate hikes were paused on Wednesday by the Federal Reserve, after 15 months of hikes. However policymakers signaled they would most likely resume interest rate hikes in the future to slow inflation. The prospect of additional hikes stoked fears of a cooling economy or even a potential recession, and the crushing effect on demand it might have.
Rebecca Babin, a senior energy trader at CIBC Private Wealth said, “The market is looking for a line of sight to the end of the hiking cycle for some confidence and to bring back some fundamental investors.” She noted that the possibility of there being more hikes in the third and fourth quarter “is not easing fears about macro headwinds for crude.”
Crude has been largely range-bound since the start of May, as surprisingly free-flowing Russian supplies and concerns about demand levels globally, counteracted Saudi-led OPEC+ and its efforts to reduce supply by curtailing production output. On Wednesday, JPMorgan Chase & Co joined the oil bulls who have cut their forecasts, as the bank announced that it felt the actions of OPEC+ would not balance the markets in 2023.
Meanwhile the International Energy Agency said in a report that world oil markets may tighten significantly in the next few months, as China begins ramping up its fuel consumption following its abandonment of pandemic restrictions and the production cuts from OPEC+ begin to take effect. Prior to that, a large batch of Chinese crude import quotas, also improved the outlook for consumption in the Asian nation.
