Oil Prices Fall On Fears Of Further Interest Rate Hikes From The Fed

• Oil prices are set for another weekly loss as fears of further aggressive action from the Fed countered optimistic demand forecasts from the IEA and OPEC.
• While inflation does appear to be easing, there are fears that the path lower will not be smooth and inflation may not be cooling fast enough for the Fed’s liking.
• The recent oil inventory increase reported by the EIA added to fears that U.S. demand was waning, although the data was skewed just to an adjustment.

Despite rising earlier this week, crude oil prices are set to end the week with a loss, largely driven by concern that the Federal Reserve is not done with aggressive rate hikes.

Both Brent crude and West Texas Intermediate were down in Asian pre-noon trade today, Reuters noted, although the decline was minor, at 0.75 percent. It also quoted economic data from the United States, namely the latest producer price index report, which gained 0.7 percent in January after declining 0.2 percent in December.

The PPI report followed the latest consumer price data, which showed that inflation had risen by 0.5 percent on a monthly basis in January and by 6.4 percent on an annual basis—more cause for concern that the Fed will continue with its aggressive approach to inflation control.

"Strong U.S. data bolstered concerns over rate hikes and prompted a rise in U.S. Treasury yields, which weighed on oil and other commodity prices," Fujitomi Securities chief analyst Kazuhiko Saito told Reuters.

“Inflation is easing but the path to lower inflation will not likely be smooth,” Jeffrey Roach, chief economist at LPL Financial, told CNBC earlier this week in comments on the latest CPI release.

“The Fed will not make decisions based on just one report but clearly the risks are rising that inflation will not cool fast enough for the Fed’s liking.”

Another analyst noted to Reuters the recent increase in U.S. crude oil inventories, which, according to him suggested demand was on the wane. Others, however, have pointed out the massive inventory increase the EIA reported in its latest weekly update was the result of a data adjustment.

Meanwhile, prices received some support from the IEA, which forecast oil demand will reach a record high this year, driven by China, which will account for 50 percent of the expected demand growth.

By Irina Slav for Oilprice.com

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