The black liquid is down in the Asian session today, just after the global benchmark, the Brent crude futures, hit a high of $90 per barrel, after the U.S. Federal Reserve indicated an interest rate hike in March, leading to a technical correction in surging energy markets.
Both benchmarks pulled back amid a broader decline in financial markets triggered by the possible interest rate increase in March, announced by the US Fed, which caused a surge in the U.S. dollar.
Crude prices had earlier surged amid the tensions between Ukraine and Russia, the world’s second-largest oil producer, which has fanned fears of disruptions of natural gas to Europe.
What you should know
Brent crude futures is down 0.38%, currently trading $88.19 a barrel, after jumping about 2% to hit $90 for the first time in seven years on Wednesday. The United States’ benchmark, the West Texas Intermediate (WTI) crude futures is also down 0.69%, currently trading $86.75 a barrel, after gaining 2% in the previous session.
Howie Lee, an economist at OCBC in Singapore stated, “Continued supply challenges and mounting Russia-Ukraine tensions continue to support crude oil prices. It is down slightly today but I think it is nothing more than a technical move.” He further added that while the Russia-Ukraine tensions have a role in lifting oil prices, “real supply challenges both within OPEC and the U.S. … have been the main drivers in pushing the market higher,” referring to the Organization of the Petroleum Exporting Countries and its allies (OPEC+).
- OPEC+ is gradually relaxing 2020’s output cuts as demand recovers from the demand collapse that year. But many smaller producers can’t raise supply and others have been wary of pumping too much in case of renewed COVID-19 setbacks.
- These worries has caused the cartel to miss its planned supply increase target in December, highlighting capacity constraints that are limiting supply as global demand recovers from the COVID-19 pandemic.
- Also affecting the price of the black liquid is the increase in crude oil and gasoline inventories in the United States, the world’s biggest oil consumer. This helped to alleviate some of the concerns about supply.
Crude inventories rose by 2.4 million barrels in the week to Jan. 21 to 416.2 million barrels, compared with analysts’ expectations in a Reuters poll for a 728,000-barrel drop, the Energy Information Administration (EIA) said on Wednesday. Gasoline stocks =ECI rose by 1.3 million barrels last week to 247.9 million barrels, the EIA said, the most since February 2021.
