(C) Reuters. FILE PHOTO: A petrol station attendant prepares to refuel a car in Rome, Italy, January 4, 2012. REUTERS/Max Rossi
By Scott DiSavino
NEW YORK (Reuters) – Oil prices dropped nearly $2 a barrel on Wednesday, putting both benchmarks on track to close at a three-week low, on demand concerns sparked by a rise in COVID-19 cases in Asia and fears higher inflation might lead to a Federal Reserve interest rate hike that curbs U.S. economic growth.
Traders also noted that oil prices were reacting to rumors that the Iran nuclear talks were making progress, which could boost global crude supplies.
Brent futures were down $1.93, or 2.8%, to $66.78 a barrel by 12:54 p.m. EDT (1654 GMT), while U.S. West Texas Intermediate (WTI) crude fell $2.04, or 3.1%, to $63.45. Earlier in the day, WTI was down more than 5%.
That puts both contracts on track to close at their lowest levels since April 27.
Prices declined despite U.S. data showing a smaller-than-expected 1.3 million barrel build in crude inventories, a bigger-than-expected 2.0 million barrel decline in gasoline stockpiles and a 5% increase in gasoline use to pre-pandemic levels. [EIA/S]
U.S. gasoline demand jumped to 9.2 million barrels per day (bpd) last week, its highest since March 2020.
“Given that people topped off tanks and filled garbage cans with gasoline (due to the Colonial Pipeline shutdown) … I expect the gasoline demand number to be pared next week,” said John Kilduff, partner at Again Capital LLC in New York, referring to the shutdown of Colonial’s oil products pipeline after a cyberattack.
On Tuesday, Brent’s intraday rise to $70 a barrel came on optimism that oil demand would surge with the reopening of U.S. and European economies. It retreated on fears of slowing fuel demand in Asia where surging COVID-19 cases prompted new restrictions in India, Taiwan, Vietnam and Thailand.
“The global picture for demand is probably the most divided it has been since the start of the pandemic, with an improving demand picture in the West versus a deteriorating outlook in Asia,” said Sophie Griffiths, market analyst with OANDA.
Rumors of progress in the Iran nuclear talks also depressed crude prices.
Analysts have said Iran could provide about 1 million to 2 million bpd in additional oil supply if a deal is struck.
Russian Deputy Prime Minister Alexander Novak, however, said oil prices were stable and the market had roughly balanced.
Uncertainties over inflation and speculation the Fed might raise rates weighed on the outlook for economic growth and prompted investors to reduce exposure to oil and other commodities, bitcoin and other cryptocurrencies, and stocks.
Investors were waiting for the release of the minutes from the Fed’s April policy meeting, at which the central bank held rates steady. The minutes are due to be released at 2 p.m. EDT.
The Fed has indicated that rates will stay at current low levels through 2023, though futures markets show investors believe they may start to be raised by September 2022.
The U.S. dollar , meanwhile, gained against a basket of currencies a day after falling to its lowest level since January. A stronger dollar can weigh on oil prices because it makes the commodity more expensive for holders of other currencies.
Oil prices drop nearly $2 a barrel on Asia COVID-19, inflation fears