Oil prices fall ahead of expected U.S. interest rate hike

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Models of oil barrels and a pump jack are shown in front of a rising stock chart and “$100” in this illustration taken February 24, 2022. REUTERS/Dado Ruvic/Illustration

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  • Investors are betting the Fed will announce a 75 basis point hike
  • Recession fears, cloud outlook for COVID lockdowns in China
  • OPEC+ continues to produce below target
  • U.S. EIA inventory data due out Wednesday

LONDON, June 15 (Reuters) – Oil prices fell on Wednesday on concerns over fuel demand and global economic growth ahead of an expected sharp hike in interest rates by the U.S. Federal Reserve.

Brent futures for August were down 50 cents, or 0.4%, at $120.67 a barrel at 13:57 GMT, after falling to $119.40 a barrel earlier in the session.

U.S. West Texas Intermediate crude for July fell 71 cents, or 0.6%, to $118.22 a barrel, after falling to $116.99/bbl earlier in the session.

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“Oil markets see in the uncertainty what central banks will do next and how that will affect demand for oil,” said UBS analyst Giovanni Staunovo.

Soaring inflation has led investors and oil traders to brace for a big move from the Fed this week: a 75 basis point hike, which would be the largest U.S. interest rate hike in 28 years old. Read more

Stronger monetary policy tightening could “set the stage for recession-induced demand destruction,” said PVM analyst Stephen Brennock.

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. Read more

Adding to demand issues, the latest COVID outbreak in China has raised fears of a new phase of lockdown. Read more

Rising oil prices and weakening economic forecasts are clouding prospects for future demand, the International Energy Agency said on Wednesday. Read more

But lingering worries about 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. Read more

“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 in 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 are not putting more gasoline on the market. Read more

U.S. crude and distillate inventories rose last week, while gasoline inventories fell, market sources said, citing figures from the American Petroleum Institute on Tuesday.

Stock market data from the US Department of Energy is due Wednesday.

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Additional reporting by Koustav Samanta in Singapore, Sonali Paul in Melbourne and Laura Sanicola in New York; Editing by Edmund Blair and Jonathan Oatis

Our standards: The Thomson Reuters Trust Principles.

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