Oil extends drop as commodities ease, investors eye rate hike

Oil fell again on Monday along with broader commodities markets, as China’s return from Lunar New Year holidays failed to deliver hoped-for gains. 

West Texas Intermediate slid near to US$78 a barrel after topping US$81 last week. Risk-off sentiment appeared to permeate markets as European equities and U.S. equity futures dropped at the start of a week marked by interest rate decisions. 

Oil rose briefly after the release of German GDP data, before a strengthening dollar saw the price of crude fall to a session low. In recent weeks, a weaker U.S. currency has supported crude. 

Crude has had a bumpy ride in recent months, with prices supported by the demand outlook in China but held back by concerns that the U.S. or the euro zone could slip into recession. Although the Federal Reserve meeting Wednesday is expected to result in another rate increase, some investors are speculating the central bank is now nearing the end of its tightening cycle.

There are some signals from China that consumption is improving: Sinopec said gasoline sales were up 20 per cent over the Lunar New Year break, while the culture and tourism ministry said more than 300 million trips were made during the holidays. Yet Bloomberg’s aggregate index of eight early indicators showed few signs of improvement in January.  

“China indications have been good so far; there’s been some improvement in demand in line with expectations,” said Giovanni Staunovo, commodity analyst at UBS Group AG. “But this has all perhaps been offset by a bigger than expected build in U.S. crude inventories, based on higher net imports.” 


  • WTI for March delivery was down 1.9 per cent at US$78.20 a barrel at 9:06 a.m. in New York, after swinging between gains and losses.
  • Brent for March settlement fell 1.5 per cent to US$85.39 a barrel.

Money managers increased their net-long position in ICE Brent to the biggest in almost 11 months.

Traders are also on the lookout for any fallout from the European Union’s impending ban on seaborne imports of Russian oil products. The restrictions come into force in about a week, along with price caps similar to the mechanism imposed on the nation’s crude in December.