Oil falls by US$1 a barrel as rate hike fears outweigh tighter US stockpiles

OIL fell by around US$1 a barrel on Thursday (Dec 22) in volatile trade as the impact of tighter US crude stocks due to a winter storm in the United States was outweighed by fears that Federal Reserve interest rate hikes and China’s rising Covid-19 cases would dent demand.

Brent crude futures settled at US$80.98 a barrel, losing US$1.22, while 1.5 per cent. US West Texas Intermediate (WTI) crude futures settled at US$77.49, falling by 80 US cents, or 1 per cent.

Both benchmarks had risen by US$1 a barrel earlier in the session.

Oil gave up its daily gains after the release of US economic data showed the number of people filing new claims for unemployment benefits increased less than expected last week and the economy rebounded faster than previously estimated in the third quarter.

The rosy data increased concerns the Fed was more likely to intensify its rate hikes in a move that could slow the economy and hamper fuel consumption.

“That started to ruin the momentum because of fears the Fed would be back chopping down the market again,” said Phil Flynn, an analyst at Price Futures Group in Chicago.

At the same time, airlines cancelled nearly 2,000 US flights scheduled for Thursday and Friday, disrupting holiday travel for thousands and sending a bearish signal for travel fuel demand.

Also keeping a lid on prices was a rising US dollar and fall in equities, said Jim Ritterbusch of Ritterbusch and Associates, along with demand worries stemming from China’s Covid-19 surge.

China may be struggling to keep an accurate count of Covid-19 infections as it experiences a big spike in cases, a senior World Health Organisation official said on Wednesday, amid concerns about a lack of data from the country.

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Oil prices rise over US$2 on drawdown in US crude stocks

A Shanghai hospital told its staff to prepare for a “tragic battle” with Covid-19 as it expects half of the city’s 25 million people will get infected by the end of next week, as the virus sweeps through China largely unchecked.

Both benchmark oil contracts jumped on Wednesday after government data showed US crude inventories fell by much more than analysts had expected, posting a drop of 5.89 million barrels for the week ending Dec 16.

Distillate stocks, which include heating oil and jet fuel, also declined, going against expectations for a build, in what PVM analyst Stephen Brennock called “an overwhelmingly price-supportive stock report from the EIA”.

Stockpiles fell as demand for heating oil was set to soar because of the powerful winter storm, with sub-zero wind chills expected as far south as Texas and record-breaking lows forecast for Florida. REUTERS