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Oil dips $1 on interest rate fears, but OPEC+ cuts limit fall
Global Banking & Finance Review®
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By Arathy Somasekhar
HOUSTON (Reuters) -Oil prices eased by $1 a barrel on Monday on the increasing likelihood of more U.S. interest rate hikes, but crude supply cuts from top oil exporters Saudi Arabia and Russia limited the losses.
Brent crude futures were down 79 cents, or 1%, at $77.66 a barrel at 1:24 p.m. EDT (1724 GMT). They touched their highest level in more than two months earlier in the session.
U.S. West Texas Intermediate crude was down 94 cents, or 1.3%, at $72.90.
“Traders are very nervous about higher interest rates, which could kill demand very quickly,” said Dennis Kissler, senior vice president of trading at BOK Financial, adding that some investors were also engaging in profit-taking after last week’s gains.
Both benchmarks rose more than 4.5% last week after Saudi Arabia and Russia announced fresh output cuts bringing total reductions by the OPEC+ group to around 5 million barrels per day (bpd), or about 5% of global oil demand.
San Francisco Federal Reserve President Mary Daly on Monday repeated that she believes two more rate hikes this year will likely be needed to bring down inflation that is still too high, while Cleveland Fed President Loretta Mester also signaled more rate rises.
Higher interest rates could slow economic growth and reduce oil demand.
The U.S. Labor Department reported last Friday the smallest monthly job gain in two-and-a-half years along with strong wage growth. The data strengthened the likelihood that the Fed would raise interest rates at its meeting later this month.
Meanwhile, China’s factory gate prices fell at the fastest pace in more than seven years in June, according to government data, indicating a slowdown in the recovery in the world’s second-largest economy.
However, oil demand from China and developing countries, combined with OPEC+ supply cuts, is likely to keep the market tight in the second half of the year despite a sluggish global economy, the head of the International Energy Agency (IEA) said.
Markets are also focusing on the release of U.S. Consumer Price Index data and a slew of economic reports from China later this week to ascertain demand.
(Reporting by Arathy Somasekhar; Additional reporting by Noah Browning, Florence Tan and Emily Chow; Editing by Alexander Smith, David Goodman, Peter Graff and Paul Simao)
Brent crude is a major trading classification of crude oil originating from the North Sea. It serves as a benchmark for oil prices globally and is used to price two-thirds of the world's crude oil.
Interest rates are the cost of borrowing money or the return on savings, expressed as a percentage. They are set by central banks and influence economic activity, including spending and investment.
OPEC+ is a group of oil-producing countries that includes the Organization of the Petroleum Exporting Countries (OPEC) and other oil-exporting nations. They coordinate production levels to influence global oil prices.
Crude oil is a natural, unrefined petroleum product composed of hydrocarbon deposits and other organic materials. It is a primary source of energy and is refined to produce fuels and other products.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is often measured by the Consumer Price Index (CPI) and can impact economic growth.
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