Oil prices dropped for a second consecutive day early on Wednesday as the markets were spooked by concerns about above-target inflation and participants showed risk aversion to commodities.
As of 9:22 a.m. EDT on Wednesday, ahead of the weekly EIA report on U.S. crude oil inventories, WTI Crude was falling by 2.79 percent, trading at $63.70. Brent Crude had retreated to $66.92, down by 2.53 percent on the day, after briefly surpassing the $70 a barrel threshold early on Tuesday.
Brent failed to hold on to the $70 handle yesterday as reports of a breakthrough in the indirect talks about the nuclear deal between the U.S. and Iran (later clarified that there has been no breakthrough) sent prices down later on Tuesday.
There has been some progress in the talks, but there are things that need to be further discussed, officials present at the talks in Vienna said this week.
Apart from a possible deal that would bring Iranian oil legitimately to the market, traders and speculators were also digesting on Wednesday the resurgent fears about inflation and were staying away from riskier assets such as oil.
"Crude futures were extending Tuesday's decline in early Asian trade on Wednesday, in sympathy with the broader financial markets, which were under renewed pressure from inflation worries," Vanda Insights said in a daily note.
In addition, the U.S. dollar firmed on Wednesday, weighing on oil prices as a stronger greenback makes buying crude more expensive for holders of other currencies.
The sentiment on the oil market early on Wednesday also reflected a resurgence of coronavirus cases in Asia apart from India, which led to new restrictions in some countries and a second postponement of a long-planned Singapore-Hong Kong travel bubble without the need of quarantine. Taiwan closed some gyms and pools and all schools starting Wednesday, while Malaysia imposed a lockdown through early June.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More