Oil falls $3/bbl as investors brace for a sharp rise in US rates

NEW YORK, March 7 (Reuters) – Oil prices fell $3 a barrel on Tuesday after comments from U.S. Federal Reserve Chairman Jerome Powell fueled rate hike fears, strengthened the dollar and weakened top crude importer China. Data released.

Brent crude futures were down $2.89, or 3.4%, at $83.29 a barrel, while US West Texas Intermediate crude futures were down $2.88, or 3.6%, at $77.58 a barrel. This was the biggest one-day percentage decline for both the contracts since January 4.

Powell told Congress that the Fed would need to raise rates more than expected in light of strong recent economic data, which sent most commodities and financial markets down.

“Those comments are driving a market that has turned risk on,” said John Kilduff, a partner at Again Capital LLC in NYC.

The comments boosted the US dollar, which jumped more than 1% to a three-month high, weighing on dollar-denominated oil as making it more expensive for buyers paying with other currencies.

“An increase of one full percentage point is tremendous,” Kilduff said.

More pressure came from a contraction in China’s exports and imports in January and February, including crude oil imports, despite the lifting of COVID-19 restrictions.

“Demand from the US and Europe should remain weak given higher inflation, which also weighs down processing demand in China,” said Iris Pang, ING’s chief economist for Greater China.

Forecast of tight supply and higher demand supported the prices.

In its short-term energy outlook, the US Energy Information Administration (EIA) said that US crude oil production and demand will increase in 2023, as Chinese travel boosts consumption.

Chevron (CVX.N) Chief Executive Officer Mike Wirth told the Houston conference that “there isn’t a lot of swing capacity,” leaving global markets vulnerable to any unexpected supply disruptions.

“The key unknown for 2023 will be disruptions to Russia’s oil and refined product exports,” Commonwealth Bank of Australia analyst Vivek Dhar said in a note.

A Reuters poll before official data was published on Wednesday showed US crude inventories were expected to decline for an 11th straight week last week.

Industry data from the American Petroleum Institute is due at 4:30 pm (2130 GMT).

Reporting by Laila Kearney and Shariq Khan Additional reporting by Rowena Edwards, Florence Tan and Trixie Yap in Singapore Editing by Marguerita Choy and David Gregorio

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