Oil stretches losses into a third straight session on Fed rate worries

Oil futures stretched their losses into a third consecutive session on Thursday, pressured by a warning from Federal Reserve Chair Jerome Powell this week that interest rates will need to rise higher, and possibly faster, than previously anticipated.

Price action

West Texas Intermediate crude for April delivery
CL.1,
+1.27%
CL00,
+1.27%

CLJ23,
+1.27%
fell 94 cents, or 1.2%, to settle at $75.72 a barrel on the New York Mercantile Exchange. The U.S. benchmark saw its lowest front-month contract finish since Feb. 27, according to Dow Jones Market Data.
May Brent crude
BRN00,
-0.17%
BRNK23,
-0.17%
declined by $1.07, or 1.3%, to $81.59 a barrel on ICE Futures Europe, the lowest settlement since Feb. 22.
Back on Nymex, April gasoline
RBJ23,
+1.42%
fell 3.1% to $2.6051 a gallon, while April heating oil
HOJ23,
+4.22%
settled at $2.6689 a gallon, down 2.7%.
April natural gas
NGJ23,
-4.21%
lost 0.3% to $2.543 per million British thermal units.

Market drivers

WTI and Brent crude were down by nearly 5% so far this week, after suffering losses on Tuesday and Wednesday as Powell delivered two days of congressional testimony.

Powell said interest rates would need to rise higher than previously anticipated and said an outsize half percentage point rise in the central bank’s policy rate, rather than a quarter point move, was a possibility if incoming economic data runs hot.

His comments sent Treasury yields surging and lifted the U.S. dollar to its highest since December. A rising dollar can be a negative for commodities priced in the currency, making them more expensive to users of other currencies.

“Oil is once again snared in the Fed rate hike loop,” said Stephen Innes, managing partner at SPI Asset Management, in a note.

“At the start of the year, oil prices and most risk assets were driven by a cooling U.S. economy, a resurgent China and a recovering Europe. These are ideal conditions for a commodity rally as a cooling U.S. economy would allow for a Fed pause, leading to a weaker dollar and clearing a path for more robust Chinese fundamentals to dominate commodity trading,” he wrote. “The subsequent rally in the dollar has hurt all the commodities, and while we have reached a stalemate, it is still too early to call checkmate.”

Meanwhile, it will be difficult for crude to find its footing until China’s economic data “lights up” or the Fed turns less hawkish, he said.

A report from the Energy Information Administration released Wednesday showed the first weekly U.S. crude inventory decline in 11 weeks, but that failed to provide much support for oil prices.

In a separate report released Thursday, the EIA said domestic natural-gas supplies fell by 84 billion cubic feet for the week ended March 3. That matched the average analyst forecast in a survey conducted by S&P Global Commodity Insights.

Natural-gas futures held onto most of their early gains shortly after the data, but finished a bit lower for the session given losses among the commodity’s energy-market peers.

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

The weekly supply decline for natural gas compared with a larger five-year average drawdown of 101 bcf for the period, and a 126 bcf decline reported in early March of last year, according to S&P Global Commodity Insights.

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