U.S. West Texas Intermediate crude oil futures closed sharply higher on Thursday as traders clawed back most of the previous session’s losses. Despite the strong recovery, the market is still in a position to post a more than 1% loss for the week.
On Wednesday, the market plunged on fears that aggressive rates hike by the Fed would drive the economy into recession while putting a dent in fuel demand. Despite this hanging over the market’s head, worries over Russian supply curbs and the potential for an even tighter supply situation helped offset the negative news.
However, gains were limited by a stronger U.S. Dollar and a sharper-than-expected jump in U.S. inventories.
The price action and the battle between those who believe a drop in demand is coming and those who think supply will tighten suggest we’re in for a rangebound trade over the near term albeit a wide range.
Bearish: Fed Interest Rate Fears
Wednesday’s Federal Reserve minutes showed that policymakers would prefer to hike rates in smaller increments so that they could calibrate incoming data more closely. Fed officials also stood united in the need to continue to raise interest rates until inflation comes down to their 2% mandate.
With the Fed expected to raise rates 25 basis points in March, May, and June, crude oil traders fear that the moves will push the economy into an eventual contraction or perhaps a recession. This would put a strain on crude.