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Oil drops 1% after US data points to further rate hikes

May 10, 2023By Reuters

BENGALURU, May 10 (Reuters) – Oil prices fell by more than a dollar a barrel on Wednesday, ending a three-day rally, as economic data suggested that the US Federal Reserve might hike interest rates further.

Brent crude dropped USD 1.03, or 1.3%, to settle at USD 76.41 a barrel while US West Texas Intermediate crude (WTI) fell USD 1.15, or 1.6%, to USD 72.56 a barrel.

US consumer prices rose in April, potentially raising the likelihood that the Fed will maintain higher interest rates. Rising global interest rates have weighed on oil prices in recent months, with traders concerned about recession.

“Oil prices have been depressed by fears about economic growth related to the banking crisis and normal seasonal weakness during the spring as energy demand moderates,” said Jay Hatfield, CEO of Infrastructure Capital Management.

US crude oil inventories rose by about 3 million barrels last week due to another release from national reserves and a drop in exports, the Energy Information Administration said.

The government report confirmed industry data released late Tuesday that had reported an unexpected build, which weighed on prices for most of Wednesday’s session.

Analysts polled by Reuters had forecast a crude drawdown of 900,000 barrels.

The surprising US crude inventory build, along with lower crude imports and April’s softer export growth in China exacerbated worries about global oil demand.

The decline in crude prices was, however, limited by a surge in US gasoline demand ahead of the summer driving season.

US gasoline inventories fell by 3.2 million barrels last week, much bigger than the 1.2-million-barrel draw forecast by analysts. Distillate stocks also declined, EIA data showed.

RBOB gasoline futures rose 0.7% to USD 2.50 per gallon, while the ULSD futures HOc1 contract was unchanged.

“We are forecasting that oil prices range from USD 75-95 during 2023 based on fundamental supply and demand and that oil will rally as we head into the summer driving season,” Hatfield said.

(Reporting by Shariq Khan; Additional reporting by Noah Browning, Stephanie Kelly, and Muyu Xu; Editing by Marguerita Choy, Kirsten Donovan, and Alexander Smith)


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