Oil prices drop more than $4 ahead of possible big US rate hike

Pump jacks pump oil into an oil field on the shores of the Caspian Sea in Baku, Azerbaijan October 5, 2017. REUTERS/Grigory Dukor

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LONDON, July 14 (Reuters) – Oil prices fell more than $4 on Thursday as investors focused on the prospect of a sharp U.S. rate hike later this month that could stem inflation but at the same time affect the demand for oil.

Brent futures for September fell $4.05 to $95.52 a barrel at 1356 GMT and were on track to end a third straight session below $100.

U.S. West Texas Intermediate crude for August delivery was at $91.63 a barrel, down $4.67.

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Both contracts hit lows below the Feb. 23 close on Thursday, the day before Russia invaded Ukraine, with Brent crude hitting its lowest since Feb. 21.

Oil prices have fallen over the past two weeks on fears of recession despite a drop in exports of crude and refined products from Russia amid Western sanctions and supply disruptions in Libya. Read more

“Clearly, the focus is now on the demand side of the oil equation. Yesterday’s EIA (US Energy Information Administration) weekly report showed a significant increase in product inventories,” said Tamas Varga, analyst at PVM Oil Associates.

“The collateral damage of rising inflation fears is the strong dollar, which is also bearish for oil prices. Interestingly, physical markets are still strong, but changing financial investor sentiment is currently driving dominant.”

The US Federal Reserve is set to step up its fight against 40-year-high inflation with an oversized 100 basis point rate hike this month after a dismal inflation report showed price pressures escalating. were accelerating. The Fed’s policy meeting is scheduled for July 26-27. Read more

The Fed’s rate hike is expected to follow a similar surprise move by the Bank of Canada on Wednesday.

Investors also flocked to the dollar, often seen as a safe haven. The dollar index hit a 20-year high on Wednesday, making oil purchases more expensive for non-US buyers.

In Europe, signals were also bearish for demand, as the European Commission cut its forecast for economic growth and raised the expected inflation rate to 7.6%. Read more

Concerns over COVID-19 restrictions in several Chinese cities to curb new cases of a highly infectious subvariant have also kept oil prices capped.

China’s daily crude oil imports in June fell to their lowest level since July 2018 as refiners anticipate lockdown measures to curb demand, customs data showed on Wednesday.

Data from the US Energy Information Administration also indicates a slowdown in demand, with product supplied falling to 18.7 million barrels per day, the lowest since June 2021. Crude inventories rose, supported by another release important strategic reserves. Read more

US President Joe Biden will fly to Saudi Arabia on Friday, where he will attend a summit of Gulf allies and call on them to pump more oil.

However, spare capacity in the Organization of the Petroleum Exporting Countries is running out, with most producers pumping at maximum capacity, and it’s unclear how much extra Saudi Arabia can bring to market quickly. Read more

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Reporting by Julia Payne in London Additional reporting by Florence Tan in Singapore; edited by Kirsten Donovan and Jason Neely

Our standards: The Thomson Reuters Trust Principles.

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