Oil caps another volatile week as Fed rates and supply woes raise jitters

Crude oil endured yet another volatile week with tightening supplies, jittery financial markets and the first signs of an aggressive interest rate stance from the US Federal Reserve driving market expectations.

Oil futures tumbled in mid-morning Asian trade on Friday before easing in mid-day trade, although it gave up gains from the overnight session. On Thursday, oil prices rallied on concerns about tightened supply as the European Union mulled a potential ban on Russian oil imports that would further restrict worldwide oil trade.

Brent crude futures on Thursday settled close at $108.33 a barrel, while the US West Texas Intermediate (WTI) crude futures ended up $103.79.

Brent was the star of the week, gaining nearly 8 percent in a slow rally. But nearing the weekend, it was US Fed chair Jerome Powell who drove the headlines. Powell said on Thursday that the Fed stood ready to raise interest rates much more aggressively this year, starting with its next meeting in May.

“Fifty basis points will be on the table for the May meeting,” Powell said at a meeting of the International Monetary Fund. The comments sent financial markets tumbling overnight, with investors pricing in three back-to-back 50 basis-point hikes in the Fed’s next three meetings.

The moderating trend in oil prices across WTI and Brent benchmarks towards the latter half of the week, however, baffled many analysts, who expected a sharper rise after the United States reported its biggest inventory draw since early 2021. The US Energy Information Administration (EIA) on Wednesday reported an 8-million-barrel reduction in crude oil stocks for the week ending April 15.

The EIA data also revealed that US oil and petroleum exports hit the highest level on record last week.

Separately, OPEC told the International Monetary Fund’s steering committee that the current surge in oil prices was largely due to the Ukraine crisis, in the latest sign that the producer group would keep its production levels to the incremental level agreed upon earlier.

In a statement seen by Reuters, OPEC said the price of global benchmark Brent crude had averaged near $98 a barrel in the first quarter, up about $18 from the last three months of 2021. “Oil prices have been on the rise, particularly in March this year... mainly due to the escalating geopolitical tensions in Eastern Europe and concerns that this might result in large oil supply shortages, amid trade dislocations,” OPEC told the IMF.