Oil drops as market faces strategic release and hawkish Fed

Oil fell for a third session as traders faced the prospect of millions of barrels of crude from strategic reserves and tighter U.S. monetary policy while top-crude consumer China grapples with fresh virus outbreaks.

Oil fell for a third session as hawkish signals from the U.S. Federal Reserve raised the prospect of restrained economic growth while millions of barrels of crude from strategic reserves are released into the market. 

West Texas Intermediate edged lower settling near US$96 a barrel Thursday. Brent briefly dropped below US$100 for the first time since March 17. While still prone to sharp intraday swings, prices have come off following the International Energy Agency’s announcement that U.S. allies will deploy 60 million barrels from stockpiles. U.S. President Joe Biden’s administration previously announced a release of 180 million barrels from its own reserves. 

In addition to the supply picture, oil traders were also assessing the consequences of a hawkish pivot from the Federal Reserve, as policy makers rein in the support they deployed to combat soaring inflation. The dollar rose for a seventh day, making commodities priced in the currency less attractive to investors. 

A steady flow of hawkish rhetoric from Fed speakers suggest the central bank could be very aggressive in tightening policy in the next couple of policy meetings, said Ed Moya, senior market analyst at Oanda. “This could drag down all risky assets, including commodities like oil.”

Traders also kept a close eye on how many barrels were being displaced from Russia. So far, buyers still appear to be scooping up barrels, weighing on prices. Cargoes of Russian Sokol crude from the Far East have sold out for next month.