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Oil down on rising prospect of Fed interest rate jump

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Sep 14, 2022 - 11:45 AM

ANKARA (AA) – Oil prices slipped on Wednesday following an increase in US consumer prices in August, raising the prospects of a sizable interest rate hike at the Fed meeting next week.

International benchmark Brent crude traded at $92.95 per barrel at 09.29 a.m. local time (0629 GMT) for a 0.23% decrease from the closing price of $93.17 a barrel in the previous trading session.

American benchmark West Texas Intermediate (WTI) traded at $87.19 per barrel at the same time for a 0.14% loss after the previous session closed at $87.31 a barrel.

Higher-than-expected inflation in the US triggered concerns that the Federal Reserve could make large-scale rate hikes that may push the dollar higher, putting downward pressure on prices. The rising value of the dollar discourages investors as it makes dollar-indexed oil prices more expensive for its buyers.

Labor Department figures showed that the US annual consumer inflation amounted to 8.3% in August, much higher than the 8.1% estimated increase.

High inflation triggered fears that the Fed could make an interest rate hike of 100 basis points next week. This probability climbed to as high as 24% on Tuesday, according to the FedWatch Tool provided by US-based global markets company Chicago Mercantile Exchange (CME) Group.

A more hawkish Fed move could lower the value of the euro against the dollar, which is hovering around its lowest level in two decades.

Sales from US emergency stocks

Both benchmarks rose slightly during previous trade, with Brent hitting $95.49 a barrel over reports that the US would consider buying oil for its Strategic Petroleum Reserves (SPR) at $80 a barrel.

According to data released by the US Department of Energy (DOE) on Monday, emergency crude oil stocks in the country dropped by 8.4 million barrels last week to reach 434.1 million barrels, its lowest level since October 1984.

This drawdown was the highest from the Strategic Petroleum Reserve (SPR) since May, with the batch including roughly 6.3 million barrels of sweet petroleum and about 2 million barrels of sour crude.

The stock withdrawal was in line with US President Joe Biden’s pledge in March to release 1 million barrels per day over six months from the SPR to fight high fuel prices in the country.

Late Tuesday, the American Petroleum Institute (API) also announced its estimate of a rise of over 6 million barrels in US crude oil inventories, relative to the market expectation of a 200,000-barrel fall.

Significant drops in inventories indicate an increase in crude demand in the US, assuaging market concerns over dwindling demand.

China lockdowns

Strict COVID lockdowns in China continue to drag down prices, weighing on market sentiment.

Mobility levels in afflicted cities have drastically fallen as about 300 million people are subject to COVID limitations of some kind.

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