Oil dropped as traders digested hawkish headlines from US Federal Reserve officials ahead of Chair Jerome Powell’s speech on Friday, exacerbating recessionary fears.
West Texas Intermediate fell 2.5% to below $93 a barrel. Following a choppy start, the market drifted lower as Fed officials dropped hawkish hints on economic policy ahead of the central bank’s Jackson Hole symposium. Rate hikes are typically seen as bearish for crude demand as they are aimed at cooling off the economy. Still, futures struggled to find direction this week, trading in close to a $10 range.
“Oil is entering wait-and-see mode until Fed Chair Powell’s speech at Jackson Hole,” said Ed Moya, senior market analyst at Oanda. “Everyone is anticipating a big move in the dollar post-Powell and that will likely determine if we see oil prices continue to make a move towards the $100-a-barrel level.”
Meanwhile, prices continue to find support in multiple signs of a tight market. Earlier in the week, US inventories dropped for a second week in a row as the country exported its highest-ever volume of crude and refined products.
Saudi Arabia also suggested that OPEC+ could intervene by curbing output if market fundamentals and futures markets continue to diverge. OPEC+ members have lined up to support the Saudi suggestion for market intervention, while export problems in Kazakhstan have kept supply concerns at the forefront. The developments have bolstered trading activity with benchmark international futures volumes topping 1 million contracts for the first time since the middle of July.
After surging during the first five months of the year, crude has been in retreat, with losses deepening in the summer trading months. The selloff, which has been intensified by below-average trading volumes, may alleviate some of the inflationary pressures coursing through the global economy.
Iran will seek to fill the void left by Russia in Europe, and try to win back customers in countries including Greece, Italy, Spain and Turkey if a nuclear deal is secured, according to people familiar with the matter. Moscow has also approached several Asian countries to discuss possible long-term oil contracts at steep discounts as US officials continue to push a price-cap plan.
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