Oil dips on demand worries as more rate hikes likely
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[June 24, 2023] By
Arathy Somasekhar
HOUSTON (Reuters) -Oil prices settled lower on Friday, posting a weekly
decline as traders worried interest rate hikes could sap demand despite
signs of tighter supplies including lower U.S. crude stocks.
In a second straight day of losses, Brent crude closed down 29 cents, or
0.4%, to $73.85 a barrel. U.S. West Texas Intermediate (WTI) crude fell
35 cents, or 0.5%, at $69.16.
On Thursday, Brent dropped about $3 a barrel after the Bank of England
raised interest rates by a bigger-than-expected half a percentage point.
Central banks in Norway and Switzerland also hiked rates.
The benchmarks declined more than 3.5% for the week.
More U.S. interest rate hikes also seemed likelier. San Francisco
Federal Reserve Bank President Mary Daly said two more rate hikes this
year was a "very reasonable" projection.
"There seems to be a growing 'risk back off' type of trade now in crude,
triggered by the interest rate rises in the EU and disappointing
stimulus numbers out of China," said Dennis Kissler, senior vice
president of trading at BOK Financial.
The Bank of England rate rise triggered fund liquidation and energy
producers were moving to a "hedge now" mentality, Kissler added.
Higher interest rates increase borrowing costs for businesses and
consumers, which could slow economic growth and reduce oil demand.
Risk-aversion among investors also boosted the value of the U.S. dollar,
which pressures oil prices by making the commodity more expensive for
other currency holders.
U.S. business activity also fell to a three-month low in June as
services growth eased for the first time this year and the contraction
in the manufacturing sector deepened, survey data showed.
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Oil pump jacks are seen at the Vaca
Muerta shale oil and gas deposit in the Patagonian province of
Neuquen, Argentina, January 21, 2019. REUTERS/Agustin Marcarian/File
Photo
Wall Street's main indexes fell, while gold prices were on track for
their biggest weekly decline since early February.
China's promising economic recovery has faltered with several months
in a row of softer-than-expected consumption, production and
property market data.
The recession and demand concerns outweighed signs of supply-side
tightness.
U.S. energy firms this week cut the number of oil rigs operating for
an eighth week in a row, energy services firm Baker Hughes Co said.
U.S. oil rig count, an indicator of future output, fell 6 to 546
this week, the lowest since April 2022.
This week's U.S. inventory report showed crude stocks posted a
surprise decline of 3.8 million barrels.
Also set to tighten the market is Saudi Arabia's production cut of 1
million barrels per day in July announced along with an OPEC+ deal
to limit supplies into 2024.
Money managers raised their net long U.S. crude futures and options
positions in New York and London by 4,790 contracts to 78,064 in the
week to June 20, the U.S. Commodity Futures Trading Commission (CFTC)
said on Friday.
(Additional reporting by Alex Lawler and Sudarshan Varadhan; Editing
by Kirsten Donovan, Louise Heavens, David Gregorio and David Evans)
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