Oil’s rally halts as Fed comments, dollar stoke risk-off mode

Oil declined as traders weighed hawkish comments from U.S. Federal Reserve officials against the continued impact of outages in Libya.

Oil declined as traders weighed hawkish comments from U.S. Federal Reserve officials against the continued impact of outages in Libya.

Global benchmark Brent traded below US$111 a barrel after four days of gains. Bullish runs in crude and other commodities are fanning inflation, and Federal Reserve Bank of St. Louis President James Bullard said Monday that the U.S. central bank shouldn’t rule out rate increases of 75 basis points. Equity markets also opened lower and the dollar gained after the Easter holidays. 

Still, production issues in Libya are providing a bullish element to the market. The nation’s oil output has fallen to about 800,000 barrels a day. The Sharara field in the west of the country, which can pump 300,000 barrels a day, has been closed as protests spread. 

Oil has advanced more than 40 per cent this year as Russia’s invasion of Ukraine upended an already tight supply-demand balance. The war is rerouting global crude flows, with the U.S. and U.K. moving to ban the import of Russian barrels, while some Asian buyers take extra cargoes. As the war drags on, there’s mounting pressure on the European Union to curb its imports.

“We think the widely discussed view that current circumstances represent the largest oil supply shock since the 1970s is well wide of the mark,” Standard Chartered analysts including Paul Horsnell and Emily Ashford said in a report. “The immediate potential supply gap has already been offset by the combination of an existing surplus and a significant weakening of demand growth, reinforced by weak short-term demand in China.”