Oil is down nearly 3% as investors look to raise US Fed rates

Oil is down nearly 3% as investors look to raise US Fed rates

A poster with crude oil written on the side of a storage tank in the Permian Basin in Menton, Loving County, Texas, US on November 22, 2019. Photo taken on November 22, 2019. REUTERS/Angus Mordant/

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  • Powell says the Fed is ‘strongly committed’ to lowering inflation
  • Biden asks Congress to stop gasoline tax to help lower prices
  • US Energy Secretary meets oil company CEOs on Thursday
  • API Shows Crude Oil and Gasoline Inventories Increase – Market Resources
  • The US Energy Information Agency postpones the weekly report on US oil inventories due on Thursday

NEW YORK (Reuters) – Oil prices fell nearly 3 percent on Wednesday, as investors worried that a Federal Reserve interest rate hike could push the U.S. economy into recession, eroding demand for fuel.

Brent crude futures fell $2.91, or 2.5 percent, to settle at $111.74 a barrel. The global index hit its lowest level during the session at $107.03, the lowest since May 19.

US West Texas Intermediate (WTI) fell $3.33, or 3%, to settle at $106.19 a barrel. The session’s lowest price was $101.53, the lowest since May 11.

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Investors on Wednesday assessed how an interest rate hike designed to cool high inflation could derail an economic recovery. Read more

However, oil prices pared losses during the session after Fed Chair Jerome Powell pledged an “all-encompassing focus” on lowering inflation and assured that continued central bank policy rate increases would be appropriate, with the pace dependent on the economic outlook.

“Powell appears to have changed the market mood by appearing confident about the US economy,” said Phil Flynn, an analyst at Price Futures. “His words calmed the market and put a cap on prices in the short term.”

Meanwhile, US President Joe Biden has called on Congress to pass a three-month suspension of the federal gasoline tax to help combat record pump prices and provide temporary relief to American families this summer. Read more

While lower pump prices may boost fuel demand and support crude prices, PVM analyst Stephen Brennock said traders may fear the Biden administration will take further action to calm rising energy prices.

Lawmakers from both major parties have expressed opposition to suspending the federal gasoline tax.

The White House asked the chief executives of seven oil companies to attend a meeting Thursday to discuss ways to increase production capacity and reduce gasoline prices by about $5 a gallon.

Biden has publicly criticized the oil majors for their large bank profits, but he has rarely spoken directly to energy company chiefs or their representatives, according to White House records and interviews with industry sources. Read more

Michael Wirth, CEO of Chevron Corporation (CVX.N) said criticism of the oil industry was not the way to lower fuel prices and the government should change its approach. Biden responded that he was unaware that oil executives could “hurt their feelings so easily”. Read more

Government data showed that US oil refining capacity declined in 2021 for the second year in a row, as plant shutdowns continued to reduce their capacity to produce gasoline and diesel. Read more

US crude stocks rose by 5.6 million barrels last week, gasoline stocks increased by 1.2 million barrels, while distillate stocks fell by 1.7 million barrels, according to market sources citing figures from the American Petroleum Institute on Wednesday.

The US Energy Information Administration said its weekly oil data, which was due to be released on Thursday, will be delayed due to systems issues at least until next week. It was not clear when the EIA report would be published.

The $2.4 trillion to be invested globally in energy this year includes record spending on renewables, but it falls short of closing the supply gap and tackling climate change, the International Energy Agency said. Read more

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(Reporting by Stephanie Kelly) Additional reporting by Shadia Nasrallah, Sonali Paul and Mohi Natian. Editing by Margarita Choi and David Gregorio

Our Standards: Thomson Reuters Trust Principles.

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