Oil drops around 3% as investors eye U.S. Fed rate hikes

A sticker reads crude oil on the side of a storage tank in the Permian Basin in Mentone, Loving County, Texas, U.S. November 22, 2019. Picture taken November 22, 2019. REUTERS/Angus Mordant/

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  • Powell says the Fed is ‘strongly committed’ to bringing inflation down
  • Biden calls on Congress to suspend gas tax to help lower prices
  • US energy secretary to meet with oil company CEOs on Thursday
  • API shows rise in Crude and Gas stocks – market sources
  • EIA delays weekly U.S. oil inventory report scheduled for Thursday

NEW YORK, June 22 (Reuters) – Oil prices fell about 3% on Wednesday as investors feared Federal Reserve rate hikes could push the U.S. economy into recession, dampening demand for fuel.

Brent crude futures fell $2.91, or 2.5%, to settle at $111.74 a barrel. The global benchmark hit a session low of $107.03, its lowest since May 19.

U.S. West Texas Intermediate (WTI) fell $3.33, or 3%, to settle at $106.19 a barrel. The session low was $101.53, its lowest since May 11.

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Investors weighed Wednesday on how interest rate hikes designed to curb soaring inflation could stall an economic recovery. Read more

Oil prices, however, pared losses during the session after Fed Chairman Jerome Powell pledged to “focus on reducing inflation” and reiterated that continued rate hikes central bank manager would be appropriate, with the pace depending on the economic outlook.

“Powell seemed to change the mood of the market by appearing confident in the US economy,” said Price Futures analyst Phil Flynn. “His words calmed the market and put a floor on prices in the short term.”

Meanwhile, US President Joe Biden has called on Congress to pass a three-month suspension of the federal gasoline tax to help tackle record pump prices and provide temporary relief to American families this summer. Read more

While lower prices at the pump could actually boost fuel demand and support crude prices, PVM analyst Stephen Brennock said traders may fear the Biden administration will take further steps to cool down high energy prices.

Lawmakers from both major parties have expressed resistance to the suspension of the federal gas tax.

The White House has asked the chief executives of seven oil companies to meet Thursday to discuss ways to increase production capacity and cut gasoline prices by about $5 a gallon.

Biden has publicly criticized Big Oil for racking up big profits, but he has rarely spoken directly to the heads of energy companies or their representatives, according to White House recordings and interviews with industry sources. Read more

Chevron (CVX.N) CEO Michael Wirth said criticizing the oil industry was not the way to lower fuel prices and that the government should change its approach. Biden replied that he didn’t know oil executives could “get hurt so easily.” Read more

U.S. oil refining capacity fell in 2021 for the second straight year, government data showed, as plant shutdowns continued to reduce capacity to produce gasoline and diesel. Read more

U.S. crude inventories rose by around 5.6 million barrels last week, gasoline inventories rose by 1.2 million barrels, while distillate inventories fell by around 1.7 million barrels, according to market sources citing figures from the American Petroleum Institute on Wednesday.

The US Energy Information Administration said its weekly oil data, due for release on Thursday, will be delayed due to systems issues until at least next week. It is unclear when the EIA will release the report.

The International Energy Agency says the $2.4 trillion expected to be invested globally in the energy sector this year includes record spending on renewables, but is not enough to close a funding gap. supply and to combat climate change. Read more

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Reporting by Stephanie Kelly; additional reporting by Shadia Nasralla, Sonali Paul and Mohi Natayan; Editing by Marguerita Choy and David Gregorio

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