Oil price dips on growing concerns over demand
NEW YORK: Oil retreated on concerns that a further round of severe US monetary tightening to combat inflation will hurt demand, and an industry report pointed to a hefty increase in American commercial stockpiles.
West Texas Intermediate fell below US$87 (RM393.50) a barrel after a volatile session, when prices were buffeted by data showing elevated US inflation, and a possible Biden administration plan to refill strategic reserves.
Crude’s latest drop came with losses in equities and other commodities including copper.
Oil hit the lowest since January earlier this month as traders attempted to price in a possible global slowdown, tighter monetary policy and lower energy demand.
The hotter-than-expected US inflation figures have set the scene for another round of aggressive hikes from the Federal Reserve, as well as further gains in the US dollar, which is already near a record.
There’s growing concern that the US central bank may tip the world’s largest economy into recession.
“The US plans to refill its strategic stockpiles may drive expectations that there could be a floor for prices,” said Yeap Jun Rong, market strategist at IG Asia Pte.
But the guiding narrative may be the demand-outlook story, with “the consumer price index data providing the go-ahead for tighter monetary policy,” he said.
The industry-funded American Petroleum Institute reported US commercial crude stockpiles expanded by six million barrels last week, according to people familiar with the figures. The holdings, which are separate from the strategic petroleum reserve, jumped by 8.8 million barrels in the previous period.
US strategic reserves have plunged this year, hitting the lowest in almost 40 years, after President Joe Biden ordered the release of 180 million barrels to counter the inflationary fallout spurred by the conflict in Ukraine.
Now, the United States may start restocking the emergency reserve when crude dips below US$80 (RM361.84), people familiar with the matter said.
Widely-watched oil market time spreads have been volatile. Brent’s prompt spread, the difference between its two nearest contracts, was 92 US cents (RM4.16) a barrel in backwardation.
That compares with 79 US cents (RM3.57) a week ago, but a figure above US$2 (RM9.05) as recently as last month.
In Europe, possible energy rationing has exacerbated demand concerns as Moscow clamps down on supplies of gas.