Crude oil futures were higher in mid-morning Asian trade June 16 as investors returned to buy the dip after the largest US interest rate hike in nearly three decades and builds in US oil inventories sparked a selloff overnight.
At 10:10 am Singapore time (0210 GMT), the ICE August Brent futures contract was up $1.14/b (0.96%) from the previous close at $119.65/b, while the NYMEX July light sweet crude contract was $1.33/b (1.15%) higher at $116.64/b.
The US Federal Reserve at an overnight meeting hiked its target fed funds rate by 75 basis points to a range of 1.5%-1.75%, its largest increase since 1994.
The hike, while widely expected, followed a higher-than-expected May inflation report on June 10 and marks an acceleration in the Fed’s plan to tame rising prices and slow economic growth.
Analysts said recession risks were on the horizon. Fed chair Jerome Powell has signaled more hikes in the Fed’s remaining policy meetings in 2022.
“The Fed funds rate will end the year well above 3% with the dollar set to stay strong, but moving harder and faster comes at an economic cost,” said ING analysts led by Chief International Economist James Knightley in a June 16 note.
“Rising recession risks mean rate cuts will be on the agenda for summer 2023,” they said.
IG market strategist Yeap Jun Rong said: “Having fallen behind the curve in keeping inflation down, the Fed is clearly compensating with outsized rate hikes now, which may elevate risks of a hard landing.”
The rate hike, along with reports of builds in US crude and distillate stocks last week, saw the ICE Brent and NYMEX crude markers settling down 2.2%-3% overnight at two-week lows.
US crude stocks build
Nationwide commercial crude stocks in the US rose 1.96 million barrels to 418.71 million barrels in the week ended June 10, US Energy Information Administration data released late June 15 showed, putting them 13.9% behind the five-year average for this time of year.
The counter-seasonal build came in above market expectations. An American Petroleum Institute report released late June 14 had indicated that US crude inventories rose 736,000 barrels over the same period.
Total gasoline stocks dipped 710,000 barrels to 217.47 million barrels, while distillate stocks climbed 730,000 barrels to 109.71 million barrels, the EIA said.
Meanwhile, Russian seaborne exports appeared resilient despite sanctions threats in the West, easing fears of market tightness.
Compared to pre-war levels in January and February, Russia’s shipped crude exports over June 1-15 rose by 576,000 b/d to average about 3.88 million b/d, according to preliminary data from shipping analytics provider Kpler. The latest export flows, which are up from 3.81 million b/d in May, put Russia’s seaborne crude exports at the highest since May 2019.
Analysts said oil prices were expected to remain largely rangebound for the time being as investors continue to digest conflicting signals of tight supply and weakening demand.
Dubai crude swaps and intermonth spreads were lower in mid-morning trade in Asia June 16 from the previous close.
The August Dubai swap was pegged at $107.94/b at 10 am Singapore time (0200 GMT), down 71 cents/b (0.65%) from the June 15 Asian market close.
The July-August Dubai swap intermonth spread was pegged at $3.56/b at 10 am, down 8 cents/b over the same period, and the August-September intermonth spread pegged at $2.45/b, down 16 cents/b.
The August Brent/Dubai EFS was pegged at $11.64/b, down 95 cents/b.
Source: Spglobal.com
