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Oil Drops as Mounting Economic Slowdown Fears Overshadow Putin

·2 min read
Oil Drops as Mounting Economic Slowdown Fears Overshadow Putin

(Bloomberg) -- Oil dropped after the Federal Reserve raised interest rates, signaling the market fears the cascading effects of economic slowdown more than potential supply disruptions from Russia’s escalating war.

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West Texas Intermediate slipped to settle below $83 a barrel Wednesday. Crude whipsawed, rising early in the session to as high as $86 after Vladimir Putin called for substantially more troops to widen the war in Ukraine. Those gains were erased as the Federal Reserve meeting came into focus. The US central bank raised interest rates by 75 basis points for the third consecutive time, a move that could trigger an economic recession.

“Crude prices remained heavy after the Fed signaled they are going to continue to bring down inflation with more rate hikes even as the economy slows,” said Ed Moya, senior market analyst at Oanda.

US crude stockpiles climbed by 1.14 million barrels last week, while a measure of distillate demand -- which includes diesel -- fell to the lowest seasonal level in more than a decade, according to an Energy Information Administration report. The drop in fuel demand comes at a time when consumption typically picks up.

Crude is on track for its first quarterly loss in more than two years as concerns over a global economic slowdown weigh on the outlook for energy demand. The Fed decision will be followed by other central banks from Europe to Asia, which are also expected to increase borrowing costs.

Adding to bearish sentiment, China issued a giant new quota to export refined fuels, according to a local industry consultant, which could weigh on oil product markets.

Earlier on Wednesday, Putin said Russia will safeguard its sovereignty and defend territory with all available means, announcing a call-up of reservists. The move threatened to escalate the Ukraine conflict further, with the Kremlin moving to stage sham votes on annexing regions that it holds.

Prompt spreads, meanwhile, which are an indicator of near-term supply and demand tightness, were impacted by a fire at BP Plc’s refinery in Ohio that led to two fatalities. WTI’s prompt spread -- the difference between the two nearest contracts -- was at 51 cents after narrowing by 16 cents.

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(An earlier version corrected the size and scope of diesel-demand plunge in third paragraph.)

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