FILE PHOTO: A view shows the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia August 12, 2022. REUTERS/Tatiana Meel
By Laila Kearney
NEW YORK (Reuters) -Oil prices fell by $3 a barrel on Tuesday after comments from U.S. Federal Reserve Chair Jerome Powell stoked rate hike fears, the dollar strengthened and top crude importer China issued weak data.
Brent crude futures shed $2.89, or 3.4%, to settle at $83.29 a barrel, while the U.S. West Texas Intermediate crude futures dropped by $2.88, or 3.6%, to close at $77.58 per barrel. Those were the biggest single day percentage declines for both contracts since Jan. 4.
Powell told Congress the Fed would likely need to increase rates more than expected in light of recent strong economic data, pushing most commodities and financial markets lower.
“Those comments are ripping through the market, which has taken on a risk-off sentiment,” said John Kilduff, a partner at Again Capital LLC in NYC.
The remarks boosted the U.S. dollar, which jumped more than 1% to a three-month month high, weighing on dollar-denominated oil by making it more expensive for buyers paying with other currencies.
“A full percent move up is just tremendous,” Kilduff added.
More pressure came from a contraction in China’s exports and imports in January and February, including crude oil imports, despite a lifting of COVID-19 restrictions.
“Given the high inflation in the U.S. and Europe, demand from there should keep weakening, which also dampens processing demand in China,” said Iris Pang, ING’s chief economist for Greater China.
Prices were supported by forecasts for tighter supply and higher demand.
U.S. crude production and demand will rise in 2023 as Chinese travel drives consumption, the U.S. Energy Information Administration (EIA) said in its Short Term Energy Outlook.
Chevron (NYSE:CVX) Chief Executive Mike Wirth told a Houston conference there is “not a lot of swing capacity”, making the global market vulnerable to any unexpected supply disruption.
“The key unknown for 2023 will be the disruption to Russia’s oil and refined product exports,” Commonwealth Bank of Australia (OTC:CMWAY) analyst Vivek Dhar said in a note.
U.S. crude inventories were expected to post an 11th week of drawdowns for last week, a Reuters poll showed before official data is published on Wednesday. [EIA/S]
Industry data from the American Petroleum Institute’s is due at 4:30 pm (2130 GMT).