Oil futures: Crude struggles to hold gains, Fed flags more interest rate pain

22 Sep 2022

Quantum Commodity Intelligence - Crude oil futures Thursday were slightly higher in a largely failed bid to claw back the previous-session's losses, which came after the US Federal Reserve hiked interest rates and signalled further increases were in the offing.

Front-month November ICE Brent futures were trading at $90.45/b (1945 GMT), compared to the day's high of $92.81/b and Wednesday's settle of $89.83/b.  

At the same time, Nov22 NYMEX WTI was trading $83.56/b versus Wednesday's settle of $82.94/b.

The Fed hiked rates by 0.75 percentage points to 3.00%-3.25%, a move largely expected, but with the central bank flagging more steep hikes to come in a bid to tackle inflation sent oil prices lower.

"The Fed delivered a third straight 75 basis points rate hike and signalled they expect the Federal funds rate to rise to 4.6% this cycle. The updated staff projections were a bit more hawkish than many expected," said Ed Moya, senior market analyst at brokerage Oanda.

The US economy is expected to slow to just 0.2% growth in 2022, gradually rising to a still-anaemic 1.2% in 2023.

Following the latest rate hike, the Dollar Index surged to fresh 20-year highs of around 111.70  points early Thursday before sliding back.

Brent prices in the previous session hit a high of $93.50/b after Russia announced plans to escalate the war in Ukraine, while early warnings of a storm heading for the Gulf of Mexico added to supply worries, while supply concerns returned to the market Thursday.

Winter upside

Goldman Sachs has again reiterated its bullish outlook for oil prices heading into the fourth quarter, with physical markets set to tighten over winter.

Jeff Currie, head of commodities research at Goldman, said the key event would be tighter sanctions and a price cap on Russian oil, while a number of other factors will also add to tighter fundamentals.

The Caribbean weather system designated 98L is expected to develop into a powerful storm, and while most models currently place landfall over Florida or Alabama, a small westwards shift could put the oil and gas facilities around New Orleans at risk.

Last year's Hurricane Ida had a devastating impact on Port Fourchon, which acts as a major energy hub for southeast Louisiana.

Some models have slightly tilted the forecast landfall westwards, but the US National Weather Service in Lake Charles, Louisiana, said in a discussion document Wednesday:

"While it is important to recognize a potential threat to the Gulf Coast next week, it's too soon to draw any scientifically valid conclusions regarding a specific track or impacts at any location along the Gulf Coast."

Shipping costs for the largest class of oil tankers have soared to post-pandemic highs amid growing crude exports from the Middle East, along with firm demand from China, lifting rates to the steepest levels since the early days of the 2020 pandemic.