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Sept. 21, 2022, 3:14 p.m. EDT

Oil prices fall on a third weekly rise in U.S. crude supplies, as Fed agrees to another rate hike

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By Myra P. Saefong and Barbara Kollmeyer

Oil prices settled at their lowest in two weeks on Wednesday, pressured by a third consecutive weekly climb in U.S. crude supplies, as well as the Federal Reserve’s decision to raise interest rates, a move that may slow demand for energy.

Prices gave up early gains from the possibility of an even more protracted war in Ukraine, after Russian President Vladimir Putin announced a partial draft of citizens, in a sign that the seven-month war in Ukraine may be escalating the pressure on global commodity supplies.

Price action

  • West Texas Intermediate crude for November delivery /zigman2/quotes/211629951/delayed CL.1 +0.56% fell $1, or 1.2%, to settle at $82.94 a barrel, the lowest front-month contract finish since Sept. 7, according to Dow Jones Market Data.

  • November Brent crude   the global benchmark, declined by 79 cents, or 0.9%, to $89.83 a barrel on ICE Futures Europe, the lowest since Sept. 8.

  • Back on Nymex, October gasoline  was up 1.6% to $2.4865 a gallon, while October heating oil  lost 1.1% at $3.3338 a gallon.

  • October natural gas  rose 0.8% to $7.779 per million British thermal units.

Russia and the Fed

“Higher rates are restrictive in nature, and likely to become a headwind on consumer spending including that on refined products like gasoline and diesel,” said Tyler Richey, co-editor at Sevens Report Research.

However, “today’s Fed announcement is not a bearish-game changer for the oil market, and we are continuing to look for oil to find a bottom here in the upper $70s to low $80s range, as the still fluid fundamental backdrop is reassessed in real time.”

The Fed said Wednesday that it would raise its benchmark federal-funds rate by 0.75 percentage point, and said rates are going to move sharply higher before the end of the year.

“Should we see continued rate hikes, that could weigh on oil demand and keep prices range bound near current levels,” said Noah Barrett, research analyst for energy and utilities at Janus Henderson Investors. For oil markets, the decision “should have a minimal impact on prices, given that the Fed decision was in line with consensus.”

“Near-term movements in oil prices will be primarily driven by data points on demand (particularly Chinese demand) and signs of any supply disruptions as embargoes on Russian oil kick in,” he told MarketWatch. 

Meanwhile, Russia’s president early on Wednesday announced the ordering up of 300,000 reservists, and vowed to use all means necessary to defend territories, adding that this was “not a bluff.”

Putin’s announcement came a day after Russian-controlled regions in eastern and southern Ukraine announced they would hold votes to become integral parts of the former Soviet Union. Moscow was warned about its plans for those referendum at the annual gathering of the U.N. General Assembly in New York.

“In the best case this makes any peace deal that much more of a distant prospect, considering that Ukraine won’t give up any of these lands and Russia will certainly not cease its claim on the territory after it has been strengthened by a ‘popular vote’,” said Bas van Geffen, senior macro strategist at Rabobank, in a note to clients on Wednesday.

Read: German government agrees deal to nationalizes Uniper amid fallout from Russia’s war in Ukraine

US : U.S.: Nymex
$ 69.77
+0.39 +0.56%
Volume: 20,132
Dec. 6, 2023 11:22p
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