Demand worries outweighed supply concerns this week to push down oil prices, reinforced by heightened expectations of more U.S. rate hikes that lifted the greenback.
In morning trade in Asia oil was down for the third day out of the last four, despite the EIA reporting an inventory draw of 4.6 million barrels for the week to April 14, compared to a modest build in crude oil inventories for the previous week, at 600,000 barrels. For the week before that, however, the EIA had estimated a sizable draw of 3.7 million barrels.
Instead of reacting to the draw, oil traders apparently were more concerned with other news or rather non-news: the Fed has indicated repeatedly that it is not done with rate hikes. It seems there are expectations for at least one more rate hike, to be announced next month before the Fed pauses with the inflation-control measure.
“When the Fed’s commentary indicates further rate hikes, economic troubles look inevitable,” Priyanka Sachdeva, an analyst at brokerage Phillip Nova, told Bloomberg. “The only ray of hope here is China’s reemergence, which is expected to be significant enough to outweigh the dented demand from the West.”
“WTI crude is back below the $80 level and it could continue drifting lower if the strong dollar trade resumes,” OANDA’s Edward Moya told Reuters.
What’s more, the gloom and doom that oil traders appear to see for the U.S. economy has proven stronger than optimism about China, which earlier this week pushed prices higher for a while after it reported stronger-than-expected GDP growth data. Yet that wasn’t the full picture.
“Though China reported better-than-expected GDP data, both industrial production and fixed asset investments fell short of consensus data, which did not help (in) boosting oil prices,” CMC Markets analyst Tina Teng told Reuters.