Oil Drops 3% As High Inflation Risks Stoke Demand Worries

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Oil prices fell by $2 per barrel to their lowest in two weeks on Wednesday, as investors became more concerned that recent data will prompt more aggressive interest rate increases by central banks, pressuring economic growth and fuel demand, reports The Reuters.

Settlement levels were the lowest for both benchmarks 

Brent crude futures settled $2.45, or 3%, lower at $80.60 per barrel. West Texas Intermediate crude futures (WTI) dropped $2.41, or 3%, to end at $74.05 a barrel.

The settlement levels were the lowest for both benchmarks since Feb. 3.

Minutes from the latest U.S. Federal Reserve meeting showed a majority of Fed officials agreed the risks of high inflation remained a “key factor” shaping monetary policy and warranted continued rate hikes until it was controlled.

“While better U.S. economic data should mean better oil demand, the concern is that this forces the Fed to overtighten monetary policy to bring inflation under control,” said UBS analyst Giovanni Staunovo.

“This is also supporting the U.S. dollar, which is not of help for oil.”

The U.S. dollar Index gained for a second straight session, making greenback-denominated oil more expensive for holders of other currencies.

Other U.S. economic reports, however, showed some troubling signs for the world’s biggest oil consumer. Sales of existing homes fell in January to their lowest since October 2010.

U.S. crude stockpiles rose by 9.9 million barrels last week, according to market sources citing American Petroleum Institute figures on Wednesday. U.S. oil inventories have climbed every week since mid-December, worrying investors about demand in the country.

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Source: The Reuters


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