NEW YORK: Oil prices fell about 2% to a two-week low on Wednesday despite a sharp decline in US crude inventories, as the US dollar strengthened on fears that looming US Federal Reserve interest rate hikes could curb energy demand in the world’s top consumer.
A stronger dollar can hurt global demand for oil by making it more expensive in other countries, and investors were also discouraged by uneven economic data in China, the world’s biggest crude importer.
Brent futures fell $1.45, or 1.7%, to $83.32 a barrel by 11:46 a.m. EDT (1546 GMT). US West Texas Intermediate (WTI) crude fell $1.47, or 1.8%, to $79.39.
WTI and Brent were headed for their lowest closes since March 31, erasing all price gains since the surprise oil output cut announced on April 2 by the Organization of the Petroleum Exporting Countries, Russia and other allies in the OPEC+ group.
“The crude benchmarks are posting ... lows this morning in response to a strengthening in the US dollar that is, in turn, weighing on risky assets following some hot inflation data out of Europe,” analysts at energy consulting firm Ritterbusch and Associates told customers in a note.
“We still believe that the market has been too focused on the supply side of the global oil equation following the OPEC output cuts and that world oil demand is significantly weaker than widely perceived,” the note said.
US crude stockpiles fell by 4.6 million barrels last week to a 10-week low, according to the US Energy Information Administration (EIA).
That is a much bigger withdrawal than the 1.1-million barrel decline analysts forecast in a Reuters poll and the 2.7-million barrel decline reported by the American Petroleum Institute late Tuesday.
In China, stock markets closed lower due to uneven first-quarter data indicating a bumpy economic recovery after the country dropped its strict zero-COVID policy.
Global stock markets also fell, while a rally in the US dollar gained momentum, as investors focused on possible Fed rate hikes to tame inflation, rather than on hopes it would ease up to reassure investors about the US banking sector.
The Fed is likely to have one more interest rate rise in store, Atlanta Fed President Raphael Bostic said on Tuesday.
Markets are pricing in an 86% chance of the Fed raising rates by 25 basis points in May.
In Europe, European Central Bank officials remained wary of inflation and have suggested further rate hikes also.