Oil falls on worries of US rate hikes, China demand outlook

OIL prices fell more than 3 per cent on Thursday (Nov 17), with demand squeezed by mounting Covid-19 cases in China and fears of more aggressive hikes in US interest rates.

Brent crude fell US$3.08 to settle at US$89.78 a barrel, down 3.3 per cent. US West Texas Intermediate (WTI) crude slid US$3.95, or 4.6 per cent, to settle at US$81.64 per barrel.

“It’s kind of a triple whammy. We’ve got Covid-19 cases rising in China, interest rates are continuing to rise here in the US and now we’ve got technical weakness in the market,” said Dennis Kissler, senior vice-president of trading at BOK Financial.

St Louis Federal Reserve president James Bullard said a basic monetary policy rule would require interest rates to rise to at least around 5 per cent, while stricter assumptions would recommend rates above 7 per cent.

The dollar also rose as investors digested US economic data. A stronger dollar makes dollar-denominated oil more expensive for holders of other currencies.

China reported rising daily Covid-19 infections and Chinese refiners have asked to reduce Saudi crude volume in December, Reuters has reported, while also slowing Russian crude purchases.

While China’s Covid caseload is smaller than that of other countries, the world’s largest crude importer maintains stringent policies to quash early outbreaks, dampening fuel demand.

On technical indicators, US front-month futures fell below the 50-day simple moving average, triggering liquidation by funds, Kissler said, adding he expects the pressure to continue early next week.

“The market is really getting caught up for the potential of serious demand destruction, and we’re definitely seeing the mood shift to the downside,” said Phil Flynn, an analyst at Price Futures group.

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“Thankfully, those fears have abated and the situation de-escalated, which has seen oil gains unwound,” said Craig Erlam, senior market analyst at Oanda. “China remains a downside risk for oil in the near term.”

Oil gained support from official figures showing US crude stocks fell by a bigger than expected 5 million barrels in the latest week.

Supply is also tightening in November as Opec and its allies, known collectively as Opec+, implement their latest output controls to support the market. REUTERS