By Adedapo Adesanya
Oil fell by around $1 a barrel as the impact of tighter crude stocks due to a winter storm in the United States was outweighed by fears that Federal Reserve interest rate hikes and China’s rising COVID-19 cases would affect demand.
Brent crude futures settled at $80.98 a barrel after losing $1.22 or 1.5 per cent, while the US West Texas Intermediate (WTI) crude futures settled at $77.49 per barrel after falling by 80 cents or 1 per cent.
US economic data showed the number of people filing new claims for unemployment benefits increased less than expected last week, and the economy rebounded faster than previously estimated in the third quarter.
This raises the risk that the US Federal Reserve could continue raising interest rates to a higher level and keep them there for a while as it tackles inflation. The US central bank is trying to cool demand for everything from housing to labour to bring inflation back to its 2 per cent target.
The Fed last Wednesday hiked its policy rate by 50 basis points to a 4.25 per cent – 4.50 per cent range, the highest since late 2007. Fed officials expect the rate to rise to between 5.00 per cent and 5.25 per cent next year.
Also, unfriendly weather pushed airlines to cancel nearly 2,000 US flights scheduled for Thursday and Friday, disrupting holiday travel for thousands and sending a bearish signal for travel fuel demand.
Prices were also impacted by a rising US Dollar along with demand worries stemming from China’s COVID-19 surge. A stronger Dollar makes oil more expensive for holders of other currencies.
Forecasts for higher oil prices next year may yet contribute to a bullish mood for the market. This week, S&P forecast that oil could rise to $121 per barrel next year as China reopens after its COVID-19 lockdowns, and National Australia Bank also predicted higher prices citing China’s economic activity rebound next year.
However, the World Health Organisation (WHO) says China may be struggling to keep an accurate count of COVID-19 infections as it experiences a big spike in cases amid concerns about a lack of data from the country.
There were also reports that hospitals expect that half of Shanghai’s 25 million people will get infected by the end of next week as the virus sweeps through China largely unchecked.
