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HomeMarketOil heads lower ahead of expected rate hikes, OPEC committee meeting

Oil heads lower ahead of expected rate hikes, OPEC committee meeting

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Oil futures headed lower on Monday, poised to extend last week’s decline 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


    fell $1.10, or 1.4%, to $78.58 a barrel on the New York Mercantile Exchange.

  • March Brent crude
    the global benchmark, was down $1, or 1.2%, at $85.66 a barrel on ICE Futures Europe, while April Brent

    the most actively traded contract, gained $1.04, or 1.2%, to $85.36 a barrel.

  • Back on Nymex, February gasoline
    fell 1.4% to $2.5514 a gallon, while February heating oil
    shed 1.8% to $3.2039 a gallon.

  • March natural gas
    dropped 4% to $2.735 per million British thermal units.

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.

“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 analysts said.

Also see: Russia’s invasion of Ukraine will reduce oil and gas consumption while speeding up transition to cleaner fuels, BP says

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.”


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