Oil Holds Losses on Hawkish Fed Despite Surprise Stockpile Draw

(Bloomberg) -- Oil held losses on a persistently hawkish tone from the Federal Reserve, despite an unexpected decline in US crude inventories.

West Texas Intermediate traded below $77 a barrel after sliding almost 5% over the previous two sessions. Chair Jerome Powell reiterated that the bank may boost rates higher than anticipated, but said a decision hadn’t been made about the March meeting. He made the remarks during congressional testimony.

The negative sentiment around further monetary tightening overshadowed the unexpected drop in US crude inventories. Stockpiles fell about 1.7 million barrels last week, the first decline this year, according to the Energy Information Administration. Analysts had forecast another gain.

Oil has endured a bumpy year as concerns over more rate hikes from the Fed compete with optimism around China’s recovery after the dismantling of Covid Zero. Most market watchers are still bullish about the price outlook, with top trader Trafigura expecting Brent to hit $90 a barrel by the middle of the year as Asia’s biggest economy rebounds and Russian supply fades.

“The thesis of economic weakness dragging global demand down is back in the picture,” said Sean Lim, an oil and gas analyst at RHB Investment Bank Bhd. “The outlook for China is still bullish, but it may take a relatively longer time frame for demand to ramp up.”

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