Oil fell from a seven-year high after the U.S. Federal Reserve signaled that it would soon start raising interest rates to quell inflation, denting investors’ appetite for risk assets including commodities.
WTI declined after rallying to the highest level since October 2014 on Wednesday, when global benchmark Brent topped $90. That surge came as inventories at the key U.S. storage hub at Cushing fell again last week to hit the lowest level for this time of year in a decade.
Oil has rallied in the opening weeks of 2022 on the continued recovery in energy consumption from the ravages of the coronavirus pandemic. The sustained surge has stoked inflationary pressures worldwide, and the Fed signaled that it will start boosting borrowing costs from March. Its action helped to strengthen the dollar, weighing on raw materials, Bloomberg reported.
Oil’s market structure is still flashing signs of tighter supplies, with backwardation -- a bullish indicator marked by near-term contracts above those further out - widening significantly. Brent’s prompt timespread was at $1.21 a barrel in backwardation, up from 41 cents at the start of the month.
Among the other U.S. inventory figures, nationwide crude supplies expanded for a second week and gasoline inventories rose to the highest level in nearly a year. Still, gasoline stockpiles remain seasonally low as U.S. Gulf Coast refiners are undergoing a heavier-than-usual maintenance season, and demand is expected to bounce back during the summer driving season.
OPEC and its allies including Russia will get a chance to weigh in next week when they meet Feb. 2. The coalition will probably rubber-stamp a hike of 400,000 barrels a day for March, according to officials from about half of the group’s members.
