Since early April, oil headed for its first back-to-back weekly loss as fears of a demand-sapping global recession and tighter US monetary policy ripped through commodity markets and to spur a broad sell-off.
Oil’s rally went into reverse earlier this month on escalating concern over a global slowdown as central banks including the Federal Reserve boosted interest rates to quell raging inflation. Prices have sunk despite signs that energy markets remain tight in the near term as the war in Ukraine drags on and supply risks persist. In addition, key time spreads remain elevated.
West Texas Intermediate traded above $104 a barrel after diving almost 6% over the previous two sessions. The US benchmark has shed close to 5% this week, putting prices on course for their first monthly drop since November.
The market is reacting to a Fed-induced slowdown, with WTI crude slipping into “sell mode,” said Stephen Innes, managing partner at SPI-Asset Management.
Still, in a sign of the current tightness, oil markets remain in backwardation, a bullish pattern in which near-term prices trade above longer-dated ones. Brent’s prompt spread — the difference between its two nearest contracts — was $3.68 a barrel, up from $2.73 a week ago.
This week’s drop unfolded as Fed Chair Jerome Powell reiterated his firm commitment to reining in the pace of US price gains. Policy makers raised rates by 75 basis points last week and Powell signaled another move of that size — or a 50 point increase — was on the table for July’s meeting.
The crude market has been deprived this week of fresh data on the state of US inventories. The Energy Information Administration’s stockpile report was delayed after a power disruption damaged some of the agency’s hardware.
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