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Rate Hikes Send Oil Prices Tumbling: A 4% Drop Despite Dwindling US Oil Stock

As economic anxiety mounts with successive rate hikes, oil prices nosedive by over 4%, even in the face of shrinking US oil supplies.

Crude Oil Processing Plant
Crude Oil Processing Plant

Significant Oil Market Shakeup: 4% Slump Amid Economic Tension

Oil futures experienced a significant 4% dip on Thursday. The unexpected rate hike by the Bank of England sparked concerns about the economy and fuel demand, which overshadowed the relief from an unforeseen decrease in US oil supplies. Brent futures dropped $3.33, or 4.3%, to a value of $73.79 a barrel. Simultaneously, US West Texas Intermediate (WTI) crude futures fell $3.41, or 4.7%, to $69.12.

Benchmarks Erase Gains as Biofuel Expectations Diminish

Prior gains from the last session, when US corn and soybean prices hit multi-month highs, were erased. This price surge had kindled expectations that biofuel blending might decrease due to crop shortages, thereby elevating oil demand. However, these expectations were dashed amidst the falling oil prices.

Economic Slowdown Fears Rise Following Bank of England's Rate Hike

The Bank of England's decision to increase interest rates by a larger-than-anticipated half a percentage point to combat persistent inflation has raised fears of an economic slowdown. This marks the central bank's 13th consecutive rate increase, potentially stifling economic growth and lowering oil demand.

US Federal Reserve Predicts More Rate Hikes; Global Equities Down

Adding to the caution, US Federal Reserve Chair Jerome Powell made the prediction of two more 25 basis points rate hikes by year's end, describing it as a "pretty good guess." Alongside this, global equities, which often fluctuate in sync with oil, also saw a downturn.

US Crude Inventory Drops; Gasoline and Distillate Stocks Rise

In terms of supply, US crude inventories dropped by 3.8 million barrels last week, standing now at 463.3 million barrels. This was in stark contrast to the 300,000-barrel rise analysts had predicted. Despite this, US gasoline stocks witnessed an increase of about 480,000 barrels in the same week, reaching 221.4 million barrels. Similarly, distillate inventories, including diesel and heating oil, grew by around 430,000 barrels, taking the total to 114.3 million barrels.

Market Response Underwhelming; Focus Shifts to Chinese Factory Activity

Despite the decline in crude oil and only minor increases in refined product inventories, market response was less enthusiastic than expected, largely due to the pressure of rising interest rates. "The crude oil and refined product market is simply being weighed down by higher interest rates," said Andrew Lipow, president of Lipow Oil Associates in Houston. Investor focus now turns towards the upcoming Chinese factory activity data, which might reveal more about the strength of China's economy.

Potential Oil Price Surge Predicted by EOG Resources Executive

As per an executive from US shale producer EOG Resources, oil prices may see an upward trend in the future. This would be due to restrained growth in US oil production and OPEC+ producer cuts limiting supply in the upcoming months.