Oil is heading for the first weekly decline since April after a period of choppy trading as investors weigh the prospect of further monetary tightening from central banks to curb rampant inflation.
West Texas Intermediate fell to trade below $117 a barrel on Friday after rising 2% in the previous session. Federal Reserve Chair Jerome Powell this week openly endorsed for the first time raising interest rates well into restrictive territory, a strategy that’s often resulted in an economic downturn. The bank hiked rates the most since 1994 on Wednesday to combat inflation.
Russia’s invasion of Ukraine has fanned inflation and helped to drive up the cost of everything from food to fuels. US retail gasoline prices have repeatedly broken records and the national average recently topped $5 a gallon. The White House is weighing limits on fuel exports to try and alleviate the pump pain.
“Oil has certainly been caught up in the selloff sparked by inflationary fears,” said Daniel Hynes, a Sydney-based senior commodities strategist at Australia and New Zealand Banking Group Ltd. “However, underlying supply tightness is likely to keep these dips relatively shallow.”
Crude is still up more than 50% this year as rebounding demand combined with upended trade flows from Russia to squeeze the market. Prices could withstand an economic slowdown because supplies are tighter than other recessionary periods, S&P Global Inc. Vice Chairman Daniel Yergin said this week.
