Oil futures climbed on Thursday, shaking off early losses from economic growth worries in the wake of the Federal Reserve’s latest interest-rate hike, to finish higher after the U.S. announced new economic sanctions on Iran.
A visit by European leaders to Ukraine, meanwhile, was also likely supportive for oil prices as it signaled the potential for more sanctions against Russia’s energy sector.
- West Texas Intermediate crude for July delivery CL.1, +2.25% CL00, +2.25% CLN22, +2.25% rose $ 2.27, or 2%, to settle at $ 117.58 a barrel on the New York Mercantile Exchange, staging a partial rebound from Wednesday’s 3% decline.
- August Brent crude BRN00, +0.27% BRNQ22, +0.27%, the global benchmark, added $ 1.30, or 1.1%, to $ 119.81 a barrel on ICE Futures Europe. Based on the front-month contracts, Brent and WTI both settled Wednesday around their lowest in two weeks.
- Back on Nymex, July gasoline RBN22, +1.45% rose 1.6% to $ 3.9554 a gallon, while July heating oil HON22, +0.45% added nearly 0.6% to $ 4.5719 a gallon.
- July natural gas NGN22, +0.11% climbed 0.6% to $ 7.464 per million British thermal units.
Oil prices bottomed out and reversed direction Thursday following news that the U.S. slapped “fresh economic sanctions on Iran in an effort to force the oil-producing nation back into a nuclear agreement,” Tyler Richey, co-editor at Sevens Report Research, told MarketWatch.
The U.S. Treasury Department on Thursday said it sanctioned a network of Iranian petrochemical producers as well as “front companies” in China and the United Arab Emirates which support companies it says broker the sale of Iranian petrochemicals abroad.
Meanwhile, Troy Vincent, senior market analyst at DTN, said oil trading Thursday got a boost as a visit to Ukraine by the European leaders was “interpreted as bullish for oil given that it may well signal another coming round of [European Union] sanctions against Russia and continued pressure on Russia’s oil trade.”
U.S. and global benchmark prices began Thursday on a negative note as equities and other assets perceived as risky moved lower. Crude ended at a two-week low Wednesday after the Federal Reserve delivered a 75 basis point interest rate hike, but equities initially bounced after the decision.
The energy market has been volatile in recent sessions as the Fed’s “outsized rate hike, growing concerns about global economy and subsequent demand estimates, and an uptick in domestic production have combined to trigger a wave of profit-taking after oil’s latest leg higher,” said Richey.
“The dominant trend in the market remains bullish though as the geopolitical fear bid resulting from the war in Ukraine is more than offsetting the handful of fundamental headwinds (including the new Iran sanctions) facing energy right now,” he said.
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The Fed’s decision to accelerate rate hikes is “both an admission that the Fed was far too optimistic on the outlook for inflation and increasingly calls into question the Fed’s outlook for economic growth,” said DTN’s Vincent. “It is this increased probability of pulling forward the end of the business cycle and the next recession that is worrying oil markets given this would entail falling oil demand.”
“ The Fed’s decision to accelerate rate hikes is “both an admission that the Fed was far too optimistic on the outlook for inflation and increasingly calls into question the Fed’s outlook for economic growth.” ”
The Swiss National Bank also lifted its base rate by a half point, to negative 0.25%, while the Bank of England delivered a quarter-point hike on Thursday.
Still, Vincent told MarketWatch that the Fed decision is not likely the primary cause of the decline in oil prices this week. Week to date, WTI oil futures trade more than 2% lower, while Brent oil has lost more than 1%.
Continued strength in Russian oil flows, and U.S. gasoline and distillate fuel oil demand weakness amid record-high prices are “more important” to oil market participants than the bigger than usual rate hike to the fed-funds rate, said Vincent.
On Thursday, the U.S. Energy Information Administration reported that domestic natural-gas supplies rose by 92 billion cubic feet for the week ended June 10. That compared with an average forecast for an increase of 89 billion cubic feet from analysts polled by S&P Global Commodity Insights.
Working gas stocks include revisions to “reflect resubmissions of data during the three-week period from May 20, 2022 to June 3, 2022,” the EIA said. Working gas is the volume of gas available in the market. Total working gas stocks in storage stand at 2.095 trillion cubic feet.