Oil Slips As Bearish Signals Compound Despite Putin’s Escalation
Crude oil prices jumped after Russia's Vladimir Putin ordered a partial mobilization to hold onto occupied territories in Ukraine.
(Bloomberg) -- Oil erased gains ahead of a Federal Reserve meeting that is expected to signal a continuation of measures to restrain economic growth, overshadowing Russia’s threat to escalate a war that is disrupting energy supplies.
West Texas Intermediate fell below $84 a barrel Wednesday, reversing an earlier rally to above $86 fueled by Vladimir Putin’s call for substantially more troops. Broader equity markets are in wait-and-see mode as the US central bank is expected to raise interest rates by 75 basis points. Such a move could trigger an economic recession and depress oil demand, which is already showing signs of slowing.
US crude stockpiles climbed by 1.14 million barrels last week, while a measure of distillate demand -- which includes diesel -- fell to the lowest seasonal level in more than a decade, according to an Energy Information Administration report. The drop in fuel demand comes at a time when consumption typically picks up. A counterseasonal decline for demand, which is often seen as a proxy for economic activity, suggests that soaring inflation is hitting the industries that are powered by the fuel.
“Macro markets are definitely the elephant in the room right now with rates and the dollar really keeping a lid on crude rallies,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Management.
Crude is on track for its first quarterly loss in more than two years as concerns over a global economic slowdown weigh on the outlook for energy demand. The Fed decision will be followed by other central banks from Europe to Asia, which are also expected to increase borrowing costs.
Adding to bearish sentiment, China issued a giant new quota to export refined fuels, according to a local industry consultant, which could weigh on oil product markets.
Prompt spreads, which are an indicator of near-term supply and demand tightness, have also been impacted by a fire at BP Plc’s refinery in Ohio that led to two fatalities. WTI’s prompt spread -- the difference between the two nearest contracts -- was at 53 cents after narrowing by 13 cents.
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(An earlier version corrected the size and scope of diesel-demand plunge in third paragraph.)
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