Oil Ends Up as Bulls Show “Selective Hearing” to Fed Chief

© Reuters.

By Barani Krishnan

AiVIF.com -- The head of the Federal Reserve says the central bank won’t back down from “forceful” U.S. rate hikes till it gets inflation back to its target of 2%, from current highs of above 8%. 

The long-oil crowd seems to have a problem hearing Jerome Powell though.

Crude futures tumbled initially in both New York and London trading after Powell’s speech at the Fed’s all-important annual symposium on the economy. But by the close, oil was back in the positive as bulls bought the dips to prevent another negative close before the weekend.

New York-traded West Texas Intermediate, the benchmark for U.S. crude, settled up 54 cents, or 0.6%, at $93.06 per barrel, pulling back from the session low of $91.10.  For the week, WTI showed a gain of 2.5%, after the previous week’s drop of 1.4%.

Brent crude, the London-traded global benchmark for oil, settled up $1.65, or 1.7%, at $100.99 per barrel. For the week, Brent was up 4.4%, versus the previous week’s slide of 1.5%.

In Thursday’s session, WTI fell 2.4%, responding to White House spokeswoman Karine Jean-Pierre’s remark that the Biden administration will reinstate a nuclear deal for Iran and remove sanctions on the Islamic Republic’s oil exports if it finds such an agreement in the interest of the United States.

Brent, meanwhile, slipped below $100.

Some of Friday’s rebound was linked to the growing noise within OPEC+ that Saudi Arabia’s call for new production cuts be adhered to so that crude can be maintained at $100 a barrel.

But by and large, it was also obvious that the long end of the oil market was doing its best to ignore the Fed’s determination to bust inflation. And one of the key ingredients to inflation are high oil prices.

“We are taking forceful and rapid steps to moderate demand so that it comes into better alignment with supply, and to keep inflation expectations anchored. We will keep at it until we are confident the job is done,” Powell said in a speech broadcast live from Jackson Hole, Wyoming, where the central bank was holding its yearly symposium.

The speech was one of the strongest ever by the Fed chief, reflecting the onerous burden borne by the central bank in curbing inflation retreating ever so slowly from four-decade highs.

The Fed has carried out four rate hikes since March, bringing key lending rates from nearly zero two years ago to as high as 2.5% by July.

“It appears that the oil bulls have a ‘selective hearing problem’ to the Fed chief’s speech,” said John Kilduff, founding partner at New York energy hedge fund Again Capital. “It’s obvious that if the Fed is going to bust inflation, it’s going to have to take an ax to oil prices, particularly the pump price of gasoline, which it has already done and will be doing increasingly so in the coming days, weeks and months.”

“Of course, OPEC can and will cut production in its defiant mood to keep a barrel at above $100. But don’t forget that Russia will keep selling oil at a discount of $30 per barrel because they will need to keep generating cash for the war on Ukraine. And if Iran gets to put more barrels on the market, then what OPEC cuts will be offset to some extent. Also, if we don’t get a very cold winter, then demand for oil will tank some more.”

Pump prices of gasoline averaged a record high of $5.01 a barrel in mid-June before falling steadily to below $3.87 now, according to data maintained by the American Automobile Association.

One main reason for the drop in gasoline prices has been the release of crude from the Strategic Petroleum Reserve, which the Biden administration has drawn down heavily in stages since November last year to provide more supply to the market.