(Bloomberg) -- Oil fell as investors weighed the Federal Reserve policy outlook after another hike and digested a mixed snapshot of US supply and demand.
West Texas Intermediate futures mostly traded between $70 and $71 a barrel on Thursday. Brent and WTI, though down from Wednesday's close, were near the same levels they were at before Fed Chair Jerome Powell advised that more tightening may be in store after this week's 25 basis-point increase, and said officials don't expect to be cutting rates this year. His comments came less than two weeks after the most severe banking crisis since 2008.
The appeal of risk assets including commodities was also bruised as Treasury Secretary Janet Yellen said regulators weren't looking to provide “blanket” deposit insurance without working with lawmakers, putting the focus back on the fragility of financial institutions. European equities fell at the open, while US futures continue to climb.
Crude is headed for the steepest first-quarter drop since 2020, when the pandemic hammered demand. The slump has been driven by concerns about a potential US recession, robust Russian oil flows despite sanctions, and the banking turmoil. Still, there are signs of strong demand in Asia as China recovers after ditching its Covid Zero policy late last year.
“The main immediate downside risk was the FOMC hiking by 50bps, with that outcome avoided oil has held up pretty well,” said Paul Horsnell, head of commodities research at Standard Chartered bank. “Brent was $76.20 just before the FOMC decision, not far different from that right now.”
As traders weighed the Fed's likely course of action over 2023, the dollar eased Thursday, offering support to raw materials including oil that are priced in the currency. The weakening greenback should deliver a “strong tailwind for commodity markets,” according to Australia & New Zealand Banking Group Ltd.
Meanwhile, US crude stockpiles expanded to the highest since May 2021 as strong builds on the Gulf Coast outweighed a decline at the key storage hub of Cushing, Oklahoma, Energy Information Administration data showed. Still, combined oil and fuel exports jumped to a record 12.3m b/d, and gasoline holdings shrank again.
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