Oil prices tally a weekly loss of nearly 4% on fears of Fed rate rises

Price action

• West Texas Intermediate crude for April delivery
  CL.1,
  +1.27%

  CL00,
  +1.27%

  CLJ23,
  +1.27%
  rose 96 cents, or 1.3%, to settle at $76.68 a barrel on the New York Mercantile Exchange, with prices for the front-month contract marking a 3.8% weekly fall.

• May Brent crude
  BRN00,
  -0.17%

  BRNK23,
  -0.17%,
  the global benchmark, rose $1.19, or 1.5%, to settle at $82.78 a barrel on ICE Futures Europe, leaving it down nearly 3.6% this week.

• Back on Nymex, April gasoline
  RBJ23,
  +1.42%
  rose 1.6% to $2.6458 a gallon, for a weekly loss of 3.8%, while April heating oil
  HOJ23,
  +4.22%
  added 3.9% at $2.7729 a gallon, down 4.8% for the week.
• April natural gas
  NGJ23,
  -4.21%
  lost 4.4% to $2.43 per million British thermal units, logging a weekly loss of 19%.

Market drivers

The crude-oil market is caught between “unforgiving inflation and a resurgent job market,” said Manish Raj, managing director at Velandera Energy Partners. An “unrelenting jobs report” and a dull outlook from Powell “reaffirmed the conviction that the Fed has no choice but to raise rates further.”

Both WTI and Brent marked their biggest weekly declines since the week ended Feb. 17.

Powell’s stance was very hawkish and the markets priced in “steeper rate hikes, and also a higher terminal rate, which could reach 6%,” said Ricardo Evangelista, senior analyst at ActivTrades, in emailed comments.

“As a result, the chances of a recession — and therefore lower oil demand — increased causing a drop in the price of the barrel as traders start to price in the economic contraction, that may result from the tightening of monetary policy in the United States,” he wrote.

Powell, in testimony before the Senate on Tuesday, warned that interest rates would need to rise further than previously thought to get inflation under control, while also leaving the door open to an outsize half percentage point rate hike when policy makers meet later in March.

Powell, appearing before a House panel Wednesday, reiterated that no decision had yet been made on the size of a potential March hike, emphasizing the importance of coming data releases.

On Friday, the U.S. government reported the economy created 311,000 new jobs in February, more than the 225,000 jobs economists polled by The Wall Street Journal expected. That followed a revised 504,000 gain in January.

Through Thursday, markets were “reeling from Jerome Powell’s comments earlier this week, StoneX’s Kansas City energy team, lead by Alex Hodes, wrote in Friday’s newsletter.

All in all, however, “a strong jobs report shows the economy is resilient and able to sustain a higher fed funds rate at the moment,” they said.

Looking ahead, the next few weeks for will likely be “volatile,” with oil trading “without clear direction,” Matt Parry, head of long-term research at Energy Aspects, told MarketWatch.

Still, the second half of this year should see tight fundamentals, with China potentially seeing “a faster, less complicated reopening,” supporting higher energy demand, he said.

In other news, oil production from the Organization of the Petroleum Exporting Countries and their allies in February fell by 80,000 barrels a day, according to the Platts survey by S&P Global Commodity Insights released Friday. That decline came despite a small increase in Russian output of 10,000 barrels per day, the survey showed.

Read: Baker Hughes data show a 4th straight weekly decline in active U.S. oil-drilling rigs

Also see: EIA expects lowest first-quarter natural-gas consumption in 5 years