Oil prices retreat as Fed warns of global risks

Oil prices retreated, halting a three-day rally, after a surprise rise in U.S. crude inventories and as the Federal Reserve underscored the dangers of a global hike.

U.S. crude futures were trading 0.22% lower at $70.76 a barrel, while the Brent contract was back 0.22% at $76.56. Benchmarks posted gains in the first three days of this week, the lowest since late 2021 in the first days of this week.

The Fed raised interest rates as widely expected on Wednesday but cut its GDP outlook for the year, expecting the U.S. economy to grow 0.4% this year.

The Federal Reserve signaled a potential break in its rate increase process due to instability in banking markets. It noted concerns that smaller community banks might limit their loan issuing to protect their finances, which could impede economic growth.

The Bank of England also raised its key interest rates by another 25 basis points.

The sentiment was weighed down by a surprise rise in official U.S. crude inventories, which rose by more than 1 million barrels last week to the highest in nearly two years.

Oil demand from China surges, dollar weakens

The dollar index fell to a seven-week low after the Fed meeting, which made dollar-denominated commodities like crude oil cheaper for foreign investors.

Goldman Sachs expects oil demand from China, the world’s largest oil importer, to be 16 million barrels daily. According to his assumption, Brent will reach the mark of 97 dollars per barrel in the second quarter of 2024.

Similarly, consulting firm Wood Mackenzie said China would account for a 39.7% increase in global raw material demand this year.

On the supply side, attention will turn to the next OPEC monitoring committee meeting – which could recommend production changes.

The group will likely wait for financial markets to stabilize before deciding whether it needs to react to another production pullback.