By David Gaffen
NEW YORK (Reuters) -Oil futures fell for a third day in a row on Wednesday, fueled by ongoing concerns about demand, the dollar’s strength and expectations for more interest rate hikes by major central banks.
Both OPEC and the U.S. Energy Department slashed their demand outlooks. Last week, together with allies including Russia, OPEC sent prices rising when it agreed to cut supply by 2 million barrels per day (bpd).
Brent crude futures settled down $1.84, or 2%, to $92.45. U.S. West Texas Intermediate crude ended down $2.08, a 2.3% drop, to $87.27 a barrel.
OPEC on Wednesday cut its outlook for demand growth this year by between 460,000 bpd and 2.64 million bpd, citing the resurgence of China’s COVID-19 containment measures and high inflation.
“The world economy has entered into a time of heightened uncertainty and rising challenges,” OPEC said in its monthly report.
The U.S. Energy Department lowered its expectations for both production and demand in the United States and globally. It now sees just a 0.9% increase in U.S. consumption in 2023, down from a previous forecast for a rise of 1.7%. Worldwide, the department sees consumption rising just 1.5%, down from a previous forecast for 2% growth.
“We’re not trading a slowdown in the economy – it’s fear of a slowdown in the future,” said Phil Flynn, analyst at Price Futures Group in Chicago.
The energy market is under pressure as well from the dollar, which rallied against low-yielding currencies like the yen. The Federal Reserve’s commitment to keep raising interest rates to stem high inflation has boosted yields, making the U.S. currency more attractive to foreign investors.
Minneapolis Fed President Neel Kashkari said on Wednesday the central bank will stick to its current course as “we have not yet seen much evidence that underlying inflation … is yet softening.”
U.S. producer-level inflation fanned worries on Wednesday as wholesale prices rose more than anticipated. A stronger dollar makes dollar-denominated commodities more expensive for holders of other currencies and tends to weigh on oil and other risk assets.
OPEC’s decision angered the United States, with President Joe Biden vowing unspecified “consequences” for relations with Saudi Arabia after the move due to current tightness in supply worldwide.
Russia’s state-owned pipeline monopoly Transneft on Wednesday said it had received notice from Polish operator PERN about a leak on the Druzhba oil pipeline, Interfax reported.
The International Monetary Fund on Tuesday cut its global growth forecast for 2023 and warned of increasing risk of a global recession.
(Reporting by David Gaffen; Additional reporting by Noah Browning in London; Editing by David Goodman, Will Dunham, Emelia Sithole-Matarise and David Gregorio)
