Oil prices plunged early on Thursday amid expectations of a large Fed rate hike at the end of the month and signs of weakening U.S. gasoline demand as prices remain elevated.
The higher-than-expected U.S. inflation data for June and crude and gasoline builds, both reported on Wednesday, weighed on market sentiment and prices on Thursday.
The U.S. Bureau of Labor Statistics announced on Wednesday consumer prices for June 2022, saying that over the last 12 months, the all items index jumped by 9.1 percent—the fastest consumer price increase since November 1981.
The figure was above expectations and prompted intensified market speculation that the Fed, which meets on July 26-27, could opt for another major rate hike to curb inflation after raising the key interest rate by 75 basis points in early June. The latest rise in June resulted in market sell-offs as traders and speculators started fretting that the aggressive rate hikes would lead to a recession.
At this month’s meeting, the Fed could even decide on a supersized rate hike of 100 basis points, with traders pricing in a nearly 80% probability of a full percentage-point rise, Reuters notes, citing an analysis of the contracts by CME Group.
On top of the expected large rate hike, oil prices were weighed down on Thursday by Wednesday’s EIA weekly inventory report, which showed crude and gasoline builds for the week to July 8.
“The large build in gasoline inventories was driven by a steep decline in implied demand over the week, which fell by 1.35MMbbls/d. This resulted in implied gasoline demand averaging 8.06MMbbls/d, which is the lowest level seen for this stage of the year in at least a decade,” Warren Patterson, Head of Commodities Strategy at ING, said on Thursday.
By Tsvetana Paraskova for Oilprice.com
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