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Futures Movers: Oil settles lower on bets Fed rate hikes may crimp crude demand

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Oil fell Thursday, with U.S. prices on track to finish the session lower for the first time in three sessions, on fears aggressive monetary tightening by the Federal Reserve will tip the economy into recession.

Strength in the U.S. dollar also pressured dollar-denominated crude prices.

Price action

West Texas Intermediate crude for December delivery
CL.1,
-1.43%

CL00,
-1.43%

CLZ22,
-1.43%

fell $1.92, or 2.1%, to $88.08 a barrel on the New York Mercantile Exchange.

January Brent crude BRN00
BRN00,
-0.94%

BRNF23,
-0.94%
,
the global benchmark, was down $1.46, or 1.5%, at $94.70 a barrel on ICE Futures Europe.

Back on Nymex, December gasoline
RBZ22,
-1.19%

fell 1.7% to $2.6526 a gallon, while December heating oil
HOZ22,
+3.09%

added 2.2% at $3.7578 a gallon.

December natural gas
NGZ22,
-1.88%

dropped 5.1% to $5.954 per million British thermal units after climbing by 9.7% on Wednesday.

Market drivers

The Federal Reserve on Wednesday raised its key interest rate by 75 basis points, or 0.75 percentage points, as expected, delivering a policy statement that was interpreted as a signal that the size of rate increases would likely fall at the December meeting.

Fed Chair Jerome Powell, in a subsequent news conference, said that while smaller rate rises may be in store in future meetings, it was premature to talk about a pause in rate increases and that the peak in rates would be higher than Fed officials previously thought and that rates would likely remain high for a long period, while the path to a “soft landing” for the economy had narrowed due to persistently high inflation.

See: 5 things we learned from Jerome Powell’s ‘whipsaw’ press conference

Fears that aggressive interest rate increases by the Fed and other major central banks will crimp demand have been a negative for crude.

“The Fed-induced selloff in broader risk assets certainly limited the upside appetite in oil,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank, in market commentary. U.S. crude prices are unlikely to pick up much good momentum above $90, “as recession fears should give cold feet to investors who would otherwise buy oil at the current prices.”

Read: What’s next for markets after Fed’s 4th straight jumbo rate hike

The Institute for Supply Management’s barometer of U.S. business conditions fell to 54.4% in October to touch the lowest level since the U.S. economic lockdowns in 2020.

The dollar rose sharply in the wake of the Fed’s decision, with the ICE U.S. Dollar Index
DXY,
+1.11%
,
a measure of the currency against a basket of six major rivals, up 1.5%. The index is up nearly 18% year to date. A stronger dollar is seen as a negative for commodities priced in the unit, making them more expensive to users of other currencies.

Still, Tyler Richey, co-editor of Sevens Report Research, pointed out that oil has been trending higher in recent weeks.

It’s found support amid “renewed hopes that China’s economy will reopen in the months ahead, rising geopolitical tensions surrounding the Ukraine war as well as in the Middle East,” and prospects of a standing bid from the Energy Department in the $70 a barrel range as the U.S. government looks to replenish the Strategic Petroleum Reserve, he said.

“An uncertain global economic outlook, and more specifically increasingly pressing recession worries, are for now keeping WTI prices capped in the low $90s, but due to supply concerns, there are emerging risks of an upside move as we approach the end of the year,” Richey said.

Meanwhile, natural-gas futures declined as volatile trading in the commodity continued. Prices for the front-month futures contract fell more than 5%, a day after posting a sharp rise.

The U.S. Energy Information Administration reported on Thursday that domestic natural-gas supplies rose by 107 billion cubic feet for the week ended Oct. 28. That compared with an average analyst forecast for an increase of 95 billion cubic feet, according to a survey conducted by S&P Global Commodity Insights.

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