Oil Drops $1 as Rate Hike Concerns Outweigh Inventory Draw

Oil prices lost about $1 per barrel on Thursday as the recent draw in US inventories due to a winter storm in the country was offset by concerns over the Federal Reserve’s interest rate hikes and China’s growing COVID-19 cases would weaken demand.

Brent crude futures fell $1.22 or 1.5% to $80.98 per barrel, while the US West Texas Intermediate (WTI) crude futures shed $0.80 or 1% to $77.49 per barrel.

The two benchmarks rose $1 per barrel earlier and over $2 on Wednesday after government data showed US crude stockpiles dropped 5.89 million barrels for the week ending December 16, more than analysts’ estimates.

However, oil pared gains after data from the Labor Department showed that initial jobless claims in the US climbed 2,000 to 216,000 in the week ended December 17, compared with economists’ forecast for an increase to 222,000.

Oil Pressured by Fed Rate Hike Concerns, China COVID Cases

Further pushing prices down was the world’s largest economy growing faster than expected in the third quarter.

The Commerce Department reported that the country’s gross domestic product (GDP) for the three months ending September 30 expanded by 3.2% year-on-year. The reading was higher than the 2.9% estimate from last month.

The data raised concerns that the Fed would lean on higher rate increases, which could hold the economy back and curb fuel consumption.

A bearish signal towards travel fuel demand also came into view after airlines scrapped almost 2,000 US flights scheduled for Thursday and Friday, disrupting holiday travel for thousands of people.

In addition, president of an Illinois-based energy consulting firm, Jim Ritterbusch, said prices were kept in check due to a soaring greenback and a decline in stocks, plus demand concerns caused by a surge in COVID-19 cases in China.

A hospital in Shanghai warned of a ‘tragic battle’ as the virus spreads through China largely unchecked, stating that it sees half of the city’s population being infected by the end of next week.