Oil rally stalls as Fed warns of one more rate hike by year-end
Investing.com -- Oil prices fell Wednesday, with U.S. crude backing off from the key $90-per-barrel mark, after the Federal Reserve warned of at least one more rate hike before the end of the year, offsetting a weekly petroleum inventory report that showed draws all around.
New York-traded West Texas Intermediate, or WTI, crude for delivery in November settled at $89.66 per barrel, down 82 cents, or 0.9%, on the day. The U.S. crude benchmark rose to $91.05 earlier in the session, after reaching $92.43 on Tuesday, its highest since November 2022.
London-traded Brent settled at $93.53 a barrel, down 81 cents, 0.9%. The global crude benchmark rose to $94.70 earlier in the day, after a 10-month high of $95.94 on Tuesday.
“The closer we get to $100 Brent, the more nervous some traders may get which may show more clearly in momentum indicators,” said Craig Erlam, analyst at online trading platform OANDA. “And the Fed in particular may have contributed to some of (this)”.
Fed holds rates as expected but warns of at least one more hike by year-end
The Fed’s policy-makers, as widely expected, kept interest rates unchanged at their meeting on Wednesday, after 11 previous hikes that added 5.25 percentage points to a prior base rate of just 0.25% in February 2022.
But they maintained plans to have a rate hike before the end of the year in their bid to bring inflation back to Fed’s long-desired target of 2% per annum from current levels of above 3%.
"We are prepared to raise rates further if appropriate," Powell told a news conference after announcing the Fed's latest decision on rates. "The fact that we decided to maintain the policy rate at this meeting doesn't mean we have decided that we have or have not at this time reached that stance of monetary policy that we are seeking."
For context, the headline reading for the U.S. Consumer Price Index rose for the second month in a row in August, reaching a year-on-year growth of 3.7% from 3.2% in July.
That was largely due to high pump prices of gasoline which accounted for more than half of the increase — a phenomenon that could put renewed pressure on inflation fighters at the Fed. The central bank’s desired inflation remains at a max 2% per year and it has vowed to get there with more rate hikes if necessary.
The Fed aside, an interest rate decision in China played out largely as expected. The Bank of England and the Bank of Japan are also set to decide on interest rates this week.
U.S. crude, fuel stockpiles down last week
U.S. stockpiles of crude oil and fuel products fell across the board last week as exports surged and imports fell amid a cutback as well in refining activity as the busy summer driving period ended, the government reported Wednesday.
The U.S. crude inventory balance fell by 2.136 million barrels during the week ended Sept. 15, according to the Weekly Petroleum Status Report of the U.S. Energy Information Administration, or EIA. Analysts tracked by Investing.com had expected a crude build of 0.25M barrels instead for last week to add to the 3.955M gain in the prior week to Sept. 8.
On the fuels side, the EIA reported a gasoline inventory decline of 0.831M barrels. The forecast consensus had been for a gasoline build of 1.1M barrels that would have added to the prior week’s build of 5.561M. Automotive fuel gasoline is the No. 1 U.S. fuel product.
With distillate stockpiles, there was a drop of 2.867M barrels versus the expected gain of 1.05M and the prior week’s rise of 3.931M. Distillates are refined into heating oil, diesel for trucks, buses, trains and ships and fuel for jets.
“We had runaway exports of crude versus lower imports last week, that’s basically what it came down to,” said John Kilduff, partner at New York energy hedge fund Again Capital and a regular commentator on the trends and statistics in oil. “Also, refiners seem to have started dialing back a little on runs with the end of the peak summer driving season.”
Exports of U.S. crude climbed to a whopping 5.067M barrels per day last week versus the prior week’s 3.09M. Imports averaged 6.5M daily last week, down 1.1M from the previous week. Refineries ran at 91.9% of their operable capacity last week, against a previous rate of more than 93%.
The estimated production of crude oil for last week remained at a 3-year high of 12.9 million barrels despite the EIA of late indicating declines in monthly output by U.S. oil drillers in its separately-published drilling productivity reports.
(Ambar Warrick contributed to this item)
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