Oil notched its biggest weekly drop since early May as the Federal Reserve signaled potential rate hikes ahead and European data flagged the risk of an economic slowdown.
(Bloomberg) — Oil notched its biggest weekly drop since early May as the Federal Reserve signaled potential rate hikes ahead and European data flagged the risk of an economic slowdown.
West Texas Intermediate ended fell nearly 4% this week, the most since the week of May 5.
In testimony this week, Fed Chair Jerome Powell signaled that further monetary tightening was likely in the second half. Data on Friday showed German economic activity lost much more momentum than anticipated in June, while France’s economy likely contracted in the second quarter. Powell’s comments lifted the greenback, dimming the allure of commodities priced in the US currency.
“Fear of higher rates and the associated slowdown in economic activity is putting pressure on the oil patch,” said Robert Yawger, director of the futures division at Mizuho Securities USA. Higher rates also increase the cost of carry, making everything from storing oil to shipping oil more expensive, he added.
The pace of moves in the oil market has also been exacerbated by technical trading in recent days, with both Brent and WTI falling away sharply after testing the upper ends of the bands in which they had been stuck since early May.
Oil is set for a back-to-back quarterly loss as traders fret over demand. The slump has come despite production cuts from the Organization of Petroleum Exporting Countries and its allies. One key gauge of market health, Brent’s prompt spread, has weakened heavily in recent days, hitting the softest since January.
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