HOUSTON: Oil prices fell more than 1% on Wednesday as the Federal Reserve raised its target interest rate by three-quarters of a percentage point amid demand woes and as U.S. oil production hit pre-pandemic levels.
Brent futures for August were down $1.7, or 1.5%, at $119.46 a barrel as of 2:07 p.m. ET (1705 GMT), after falling to 119.26 $ earlier in the session. It briefly turned positive, up 2 cents, after the rate hike announcement.
U.S. West Texas Intermediate crude for July fell $2.21, or 1.8%, to $116.72 a barrel, after falling to a low of $116.15.
The rate hike was the largest by the U.S. central bank since 1994, and markets fear it could depress demand for fuel.
Meanwhile, U.S. crude production, which has largely been flat for the past few months, edged up 100,000 barrels a day last week to 12 million bpd, its highest level since April 2020, data shows. of the Energy Information Administration.
“A small part of this uptick in domestic production may be the first sign of more to come there,” said John Kilduff, partner at Again Capital LLC.
The data also showed an increase in crude inventories and U.S. distillate inventories, while gasoline recorded a surprise drop following the summer driving season.
Drivers around the world were tolerating record high prices for on-road fuels, the data showed.
The European Central Bank on Wednesday pledged fresh support and a new tool to temper a market rout that stoked fears of a fresh debt crisis on the eurozone’s southern shore, but appeared to have disappointed investors at the search for bolder measures.
Adding to demand issues, the latest COVID outbreak in China has raised fears of a new phase of lockdown.
Rising oil prices and weakening economic forecasts are clouding prospects for future demand, the International Energy Agency said.
But lingering concerns over limited supply meant oil prices still held close to $120 a barrel.
The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, are struggling to meet their monthly crude production quotas, recently hit by a political crisis that has reduced production in Libya.
“Because OPEC production is still significantly below the announced level, this would lead to a supply shortfall of around 1.5 million barrels per day in the oil market in the second half of the year,” said Carsten Fritsch, commodities analyst at Commerzbank. Frankfurt.
Oil prices have been given some support due to tight gasoline supplies. US President Joe Biden has asked oil companies to explain why they aren’t putting more gasoline on the market.