Oil snaps rally as investors start to eye Fed tapering

Oil declined, capping a three-day rally, as investors await a Federal Reserve address that may provide clues about its approach to paring stimulus.

Futures in New York slid 1.4 per cent on Thursday after gaining nearly 10 per cent over the previous three sessions. The Federal Reserve’s Jackson Hole symposium will offer insights on how the central bank will ease stimulus, a move that’s viewed as negative for commodities including oil. That concern is shifting investments toward the U.S. dollar.

Most of the gains this week came from funds exiting short positions, according to traders. The aggregate trading volume for West Texas Intermediate futures was at the lowest level for the year on Thursday.

Since the Federal Reserve has indicated it’s considering reducing asset purchases, the market is “back to worrying about that,” said Bob Yawger, director of the futures division at Mizuho Securities. “The rally we saw this week was basically on thin liquidity, and therefore, wouldn’t have lasted anyway.”

Oil has been volatile this month, clawing back some losses this week after the worst streak of declines since October 2019. The European Union will discuss on Thursday whether to reimpose curbs on U.S. visitors as virus cases spike, while the oil market will be looking for any changes to production policy from the OPEC+ alliance when the group gathers on Sept. 1.

Most Federal Reserve officials agreed last month they could start slowing the pace of bond purchases later this year, judging that enough progress had been made toward their inflation goal.