Myra P. Saefong and William Watts, MarketWatch

SAN FRANCISCO/NEW YORK
EnergiesNet.com 02 22 2023

Oil finished lower on Wednesday, with U.S. crude futures registering a sixth consecutive session decline, pressured by expectations that aggressive interest-rate hikes by the Federal Reserve could lead to a recession and hurt energy demand.

Minutes of the Federal Reserve’s first policy meeting of 2023, released a half-hour ahead of the settlement for U.S. oil futures, showed that overall, Fed officials were supporting further increase in interest rates.

Price action

• West Texas Intermediate crude for April delivery CL.1, 0.30% CL00, 0.32% CLJ23, 0.30% fell $2.41, or 3.2%, to settle at $73.95 a barrel on the New York Mercantile Exchange with prices marking a sixth loss in a row. That was the longest streak of losses for a front-month contract since the six session drop ended Dec. 9 and lowest finish since Feb. 3, according to Dow Jones Market Data.
  
  
• April Brent crude BRNJ23, 0.33%, the global benchmark, lost $2.45, or nearly 3%, to $80.60 a barrel on ICE Futures Europe. May Brent BRN00, 0.34% BRNK23, 0.32%, the most actively traded contract, declined $2.32, or 2.8%, at $80.45 a barrel.
  
  
• Back on Nymex, March gasoline RBH23, -0.17% fell 3.2% to $2.3376 a gallon.
  
  
• March heating oil HOH23, 0.00% lost 2.8% to $2.7148 a gallon.
  
  
• March natural gas NGH23, 1.15% rose 4.9% to $2.174 per million British thermal units after dropping 8.9% on Tuesday to settle at the lowest since September 2020.

Read: Why the wait for lower heating bills may last for ‘months to come’

Market drivers

“The oil market still has a recession obsession,” said Phil Flynn, senior market analyst at The Price Futures Group. “Oil prices were under pressure as rate fears are raising larger concerns of oil demand destruction.”

However, there are signs that show “just the opposite,” he said. Not only did the Joint Organisations Data Initiative on Tuesday say that global oil demand hit an all-time high in December, but at least one Fed official said the market is too pessimistic on the outlook for the economy, said Flynn.

St. Louis Fed President James Bullard on Wednesday told CNBC in an interview that the markets have “overpriced a recession in the first half of 2023 and maybe they are overpricing the chances of a recession in the second half of 2023.”

“If that is the case, then oil is very underpriced,” Flynn. said. 

Still, oil futures have struggled in February as Treasury yields have risen on expectations the Fed will need to hike rates more than previously expected to rein in inflation. Rising yields also provide a lift for the U.S. dollar, which makes commodities priced in the unit more expensive to holders of other currencies.

Oil fell Tuesday alongside a rout in U.S. stocks, which saw the Dow Jones Industrial Average DJIA, -0.26% wipe out 2023 gains as major indexes suffered their worst day of 2023.

Minutes of the Fed’s Jan. 31-Feb. 1 policy meeting released Wednesday afternoon showed some central bank officials thought easier financial conditions could mean tighter monetary policy.

“Markets continue to come to terms with expectations of a more hawkish Fed, following a raft of economic data suggesting the Fed still has quite a bit of work to do,” said Warren Patterson and Ewa Manthey, commodity strategists at ING, in a note ahead of the Fed minutes.

“These headwinds, combined with a fairly comfortable oil balance, mean that the oil market will likely remain rangebound. However, we see the market breaking out of this range later in the year as the oil market significantly tightens,” they wrote.

Weekly U.S. petroleum supply data from the Energy Information Administration will be released on Thursday, a day later than usual due to Monday’s Presidents Day holiday.

On average, analysts polled by S&P Global Commodity Insights expect the EIA to report a U.S. crude supply climb of 1 million barrels for the week ended Feb. 17. They also forecast inventory declines of 400,000 barrels for gasoline and 1.3 million barrels for distillates.

Last week, the EIA reported a 16.3 million-barrel rise in crude stocks for the week ended Feb. 10. The data included an upward adjustment to supplies.

marketwatch.com 02 22 2023