Oil edged lower as the prospect of additional rate hikes from the Federal Reserve increased concerns that the US is headed for a recession that would weaken demand.
(Bloomberg) — Oil edged lower as the prospect of additional rate hikes from the Federal Reserve increased concerns that the US is headed for a recession that would weaken demand.
West Texas Intermediate traded near $72 a barrel and has largely followed broader market sentiment away from risk assets. Dallas Fed President Lorie Logan’s comments that the case for a pause next month isn’t clear are raising expectations of an economic slowdown. Also looming over sentiment are the negotiations to increase the US government’s spending limit and avoid a catastrophic default.
“Increased probability of a Fed rate hike in June and a stronger dollar are weighing on the macro tape and dragging crude with it,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth. “The reality is if you want trade crude right now, you should spend 80% of your time analyzing macro events and 20% of your time analyzing fundamentals.”
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Crude prices have fallen about 10% this year as China’s slower-than-expected recovery from Covid-19 restrictions disappointed markets. UBS Group AG was the latest to trim its bullish oil price forecast, lowering its year-end outlook for Brent to below $100 a barrel. That still implies a rebound in prices from current levels, with the bank forecasting a 1.5 million barrel-a-day market deficit in June.
The world’s demand for oil climbed by 3 million barrels a day to hit a record in March, according to the Riyadh-based International Energy Forum. In Asia, refiners in South Korea and Taiwan recently snapped up millions of barrels of US crude, while India is considering refilling its strategic hoard. Elsewhere, Angola’s crude exports are set to rise to 1.2 million barrels a day in July, a jump of almost 20% compared with the June plan.
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