- Investors are concerned that rate hikes will pressure economic growth and fuel demand.
- A stronger dollar raises the cost of oil priced in dollars for holders of other currencies.
- The amount of US oil stockpiles increased by 9.9 million barrels last week.
On Wednesday, oil prices dropped by $2 a barrel to their lowest level in two weeks as investors grew more worried that recent data would lead central banks to raise interest rates more aggressively. This would pressure economic growth and fuel demand.
WTI oil futures have fallen for the last six sessions. This has been the longest streak of losses in 2023 as rate hikes and demand worries grow.
According to the minutes of the latest meeting of the US Federal Reserve, most Fed officials concurred that raising interest rates was necessary until rising inflation was under control since it remained a “key factor” influencing monetary policy.
While improving US economic data should result in higher oil consumption, there is concern that this will drive the Fed to tighten monetary policy to manage inflation. This also helps the dollar, which hurts oil prices.
For the second straight session, the US dollar index increased, raising the cost of oil priced in dollars for holders of other currencies.
But other US economic statistics revealed some alarming trends for the top oil consumer in the world. In January, existing-home sales decreased to their lowest level since October 2010.
According to figures from the American Petroleum Institute cited by sources on Wednesday, US oil stockpiles increased by 9.9 million barrels last week. Since mid-December, US oil inventories have increased weekly, alarming investors about the country’s demand.
A Reuters poll predicted that crude stocks would increase by 2.1 million barrels last week. The Energy Information Administration will release official data on Thursday.
While large US refineries are amid maintenance season, demand for crude oil is typically lower this time of year. According to research firm IIR Energy, approximately 1.44 million barrels per day of American refining capacity is anticipated to remain offline in the week ending March 3.
Three thousand five hundred flights have been delayed or canceled nationwide thus far, according to FlightAware.com, due to a significant snowstorm in the US Northern Plains and Upper Midwest also hurting fuel consumption.