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Futures Movers: Oil prices fall on a third weekly rise in U.S. crude supplies, as Fed agrees to another rate hike

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Oil prices settled at their lowest in two weeks on Wednesday, pressured by a third consecutive weekly climb in U.S. crude supplies, as well as the Federal Reserve’s decision to raise interest rates, a move that may slow demand for energy.

Prices gave up early gains from the possibility of an even more protracted war in Ukraine, after Russian President Vladimir Putin announced a partial draft of citizens, in a sign that the seven-month war in Ukraine may be escalating the pressure on global commodity supplies.

Price action

West Texas Intermediate crude for November delivery
CL.1,
-1.28%

CLX22,
-0.68%

fell $1, or 1.2%, to settle at $82.94 a barrel, the lowest front-month contract finish since Sept. 7, according to Dow Jones Market Data.

November Brent crude
BRN00,
+0.49%

 
BRNX22,
+0.49%

the global benchmark, declined by 79 cents, or 0.9%, to $89.83 a barrel on ICE Futures Europe, the lowest since Sept. 8.

Back on Nymex, October gasoline 
RBV22,
+1.58%

was up 1.6% to $2.4865 a gallon, while October heating oil 
HOV22,
-1.14%

lost 1.1% at $3.3338 a gallon.

October natural gas 
NGV22,
+0.92%

rose 0.8% to $7.779 per million British thermal units.

Russia and the Fed

“Higher rates are restrictive in nature, and likely to become a headwind on consumer spending including that on refined products like gasoline and diesel,” said Tyler Richey, co-editor at Sevens Report Research.

However, “today’s Fed announcement is not a bearish-game changer for the oil market, and we are continuing to look for oil to find a bottom here in the upper $70s to low $80s range, as the still fluid fundamental backdrop is reassessed in real time.”

The Fed said Wednesday that it would raise its benchmark federal-funds rate by 0.75 percentage point, and said rates are going to move sharply higher before the end of the year.

“Should we see continued rate hikes, that could weigh on oil demand and keep prices range bound near current levels,” said Noah Barrett, research analyst for energy and utilities at Janus Henderson Investors. For oil markets, the decision “should have a minimal impact on prices, given that the Fed decision was in line with consensus.”

“Near-term movements in oil prices will be primarily driven by data points on demand (particularly Chinese demand) and signs of any supply disruptions as embargoes on Russian oil kick in,” he told MarketWatch. 

Meanwhile, Russia’s president early on Wednesday announced the ordering up of 300,000 reservists, and vowed to use all means necessary to defend territories, adding that this was “not a bluff.”

Putin’s announcement came a day after Russian-controlled regions in eastern and southern Ukraine announced they would hold votes to become integral parts of the former Soviet Union. Moscow was warned about its plans for those referendum at the annual gathering of the U.N. General Assembly in New York.

“In the best case this makes any peace deal that much more of a distant prospect, considering that Ukraine won’t give up any of these lands and Russia will certainly not cease its claim on the territory after it has been strengthened by a ‘popular vote’,” said Bas van Geffen, senior macro strategist at Rabobank, in a note to clients on Wednesday.

Read: German government agrees deal to nationalizes Uniper amid fallout from Russia’s war in Ukraine

“In the worst case, this is exactly the pretext that Putin needs for the deployment of nuclear or chemical weapons when Ukraine pushes ahead with its counteroffensive – or at the very least to further increase such threats to the West, adding another bout of uncertainty to the geopolitical mix,” said van Geffen.

Analysts have expressed concerns that an extended conflict will only weigh further on commodity supplies, including oil and natural gas.

See: Markets ignore Putin’s nuclear saber-rattling. Why that might change.

Supply data

On Wednesday, the Energy Information Administration reported that U.S. crude inventories rose by 1.1 million barrels for the week ended Sept. 16.

That marked a third weekly rise in a row for crude supplies, based on EIA data. On average, analysts expected a climb of 2.1 million barrels, according to a poll conducted by S&P Global Commodity Insights. Late Tuesday, data from the American Petroleum Institute reportedly revealed a weekly increase of 1.035 million barrels.

“A rise in refining activity and strong crude exports have been offset by a jump in imports and a near 7 million-barrel [Strategic Petroleum Reserve] release,” resulting in a minor build to U.S. crude stocks, said Matt Smith, lead oil analyst, Americas, at Kpler.

Crude stocks at the Cushing, Okla., Nymex delivery hub edged up by 400,000 barrels for the week, the EIA said, while stocks in the SPR were down by 6.9 million barrels at 427.2 million barrels last week.

“The increase in refining activity has combined with weaker implied demand to usher in a build for gasoline, while distillates also showed a build as higher production helped offset higher implied demand,” Smith said.

The EIA reported weekly increases of 1.6 million barrels for gasoline and 1.2 million barrels for distillates. The S&P Global Commodity Insights survey had called for inventory declines of 1.6 million barrels for gasoline and 600,000 barrels for distillates.

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