As Fed Worries Mount, Oil Prices Fall And Are on Course For Weekly Losses

Concerns over increasing U.S. interest rates and a strong currency mostly overshadowed optimism on a potential recovery in Chinese demand, which led to a modest decline in oil prices on Friday and a projected weekly loss.

The U.S. producer price index inflation for January was higher than anticipated, after a report on the consumer price index that suggested inflation will likely continue tenacious in the world's largest economy.

The findings, along with harsh overnight comments from Federal Reserve officials, indicated further interest rate rises in the coming months, which investors fear will stifle economic growth and weigh on petroleum consumption this year.

Around 21:13 ET, Brent oil prices decreased 0.1% to $84.55 per barrel, while West Texas Intermediate crude futures decreased 0.7% to $77.97 per barrel (02:13 GMT). This week, both futures were expected to lose between 1.5% and 2%.

Overnight, the dollar appreciated as Fed governors James Bullard and Loretta Mester advocated for more rate rises by the central bank, which impacted on petroleum prices. The dollar's strength raises the price of petroleum for overseas customers, hence diminishing global oil demand.

The Biden Administration's anticipated sale of 26 million barrels of petroleum from the Strategic Petroleum Reserve also weighed on oil prices earlier this week. This, along with statistics indicating a far larger-than-anticipated increase in U.S. oil stockpiles, suggested an imminent U.S. supply glut.

This week, oil prices were buoyed by optimism over a rebound in Chinese demand. However, the negative supply and monetary policy cues essentially negated this optimism, resulting in a decline in crude prices. In recent sessions, oil prices fluctuated wildly as markets evaluated a more optimistic demand forecast against hints of impending conflict.

The Organization of Petroleum Exporting Countries and the International Energy Agency both increased their demand predictions for the year, with a rebound in China expected to account for over fifty percent of oil demand this year.

China proposed fresh spending measures this week as part of its efforts to bolster economic development following three years of COVID restrictions.

Although China's relaxation of the majority of anti-COVID policies this year, China's economic figures have been fairly mediocre. Oil bulls are now waiting for more consistent evidence of economic improvement in the top oil importer in the world.