Futures Movers: Oil settles lower ahead of expected rate hikes, OPEC committee meeting
Oil futures settled lower on Monday, extending declines from last week as investors awaited expected rate hikes by the Federal Reserve and other central banks.
The outcome of an OPEC+ committee meeting and the Federal Reserve’s monetary policy decision will both come on Wednesday, while the European Union’s ban on imports of Russian oil products will begin on Feb. 5.
Price action
West Texas Intermediate crude for March delivery
CL.1,
-2.37%
CL00,
-2.37%
CLH23,
-2.37%
fell $1.78, or 2.2%, to settle at $77.98 a barrel on the New York Mercantile Exchange. That was the lowest front-month contract finish since Jan. 11, according to Dow Jones Market Data.
March Brent crude
BRNH23,
+0.05%,
the global benchmark, lost $1.76, or 2%, at $84.90 a barrel on ICE Futures Europe, the lowest for the contract since Jan. 16. April Brent
BRN00,
-0.11%
BRNJ23,
-0.11%,
the most actively traded contract, fell $1.90, or 2.2%, to $84.50 a barrel.
Back on Nymex, February gasoline
RBG23,
-3.55%
fell 3.5% to $2.4989 a gallon, while February heating oil
HOG23,
-4.80%
declined by 4.7% to $3.1108 a gallon.
March natural gas
NGH23,
-6.25%
dropped 6% to $2.677 per million British thermal units, the lowest front-month settlement since April 15, 2021.
Market drivers
Crude lost ground in rangebound trade last week, with investors continuing to assess the demand outlook following China’s dropping of COVID-19 curbs. Traders also appeared reluctant to press positions ahead of the Wednesday meeting of the OPEC+ Joint Ministerial Monitoring Committee, which reviews the oil market but has no ability to make official production policy decisions. The next full meeting of OPEC+ members is scheduled for June.
Read: OPEC+ committee meets next week with ample oil uncertainties to discuss
The Federal Reserve, meanwhile, is expected to deliver a rate increase of 25 basis points, or a quarter of a percentage point, when it concludes a two-day policy meeting Wednesday. The European Central Bank is expected to deliver another rate increase when it meets Thursday.
“A hawkish sentiment for potential future rate hikes will give weakness to crude and refined products across the board,” analysts on the Kansas City energy team at StoneX wrote in Monday’s newsletter.
See: The Fed and the stock market are set for a showdown this week. Here’s what’s at stake.
The OPEC+ committee meeting is unlikely to signal any shift in output policy “given the lingering uncertainty that overshadows the market, both from a supply and demand perspective,” said Warren Patterson and Ewa Manthey, commodities strategists at ING, in a note.
Crude had climbed in early Asian trade after reports of a suspected Israeli drone attack on targets within Iran, they wrote.
Read: What drone attacks on Iran mean for oil prices
“It is still unclear whether a fire at a refinery was also connected to the attack. Iran is pumping a little more than 2.5 million barrels a day and there have been reports of increased exports in recent months,” the ING strategists said.
However, Stephen Innes, managing partner at SPI Asset Management, said Iran’s oil production facilities are located primarily in the southwest of the country and were not targeted in the current strikes.
He also noted that Iran is a “marginal” global crude exporter, and any significant disruption could be “offset by newly created OPEC spare capacity.”
Natural-gas futures, meanwhile, settled at their lowest since April 2021, with U.S. forecasts for warmer weather in the Eastern Coast and parts of the central regions, said Victoria Dircksen, commodity analyst at Schneider Electric, in a daily note. Natural-gas prices had settled Thursday at their lowest since May 2021 and on Friday, posted a sixth consecutive weekly loss.
Warmer weather is likely to “lead to weaker weather-driven demand and further support the probability that storage levels will end the winter season at a surplus to the five-year average,” Dircksen said.
