© Reuters. FILE PHOTO: Crude oil storage tanks are seen from above at the Cushing oil hub, appearing to run out of space to contain a historic supply glut that has hammered prices, in Cushing, Oklahoma, March 24, 2016. REUTERS/Nick Oxford
By Arathy Somasekhar
(Reuters) -Oil prices were steady on Thursday as markets weighed the possibility of an aggressive and unforecast rate hike for a steeper rise in energy demand. After rising more than 1% in early trade, Brent crude futures settled down 14 cents, or 0.2%, at $91.41 a barrel. U.S. Texas Intermediate crude, which rose more than $2 earlier in the day, settled up 22 cents, or 0.3% to $89.88 a barrel.
After U.S. inflation data came in on Thursday at its hottest in 40 years, St. Louis Federal Reserve Bank President James Bullard said he wanted a full percentage point of interest rate hikes by July 1.
Interest rates futures showed a 60% chance of a 50-basis-point hike in March after Bullard’s comments, and U.S. stock markets fell.
The dollar gave up some of its earlier losses. A stronger greenback makes oil and other commodities more expensive for those holding other currencies.
“Prices are confused between what appears to be strong inventory statistics and signs that the Fed is going to raise rates quicker than expected in 2022,” said Scott Shelton, energy specialist at United ICAP (LON:NXGN).
On Wednesday, oil prices rallied after data showed crude inventories fell unexpectedly last week to their lowest since October 2018, while fuel demand hit a record high.
After the data, oil prices reversed a slide spurred by the resumption of indirect U.S.-Iran nuclear talks a day earlier. A deal could lift U.S. sanctions on Iranian oil and ease global supply tightness.
Earlier this week, crude benchmarks hit seven-year highs on political concerns, and as a robust demand recovery from the coronavirus pandemic has kept inventories at fuel hubs globally at multi-year lows.
On Thursday, the Organization of Petroleum Exporting Countries said world oil demand might rise even more steeply this year as the global economy posts a strong recovery.
The report also showed OPEC undershot a pledged oil output rise in January under its pact with allies to gradually unwind record output cuts put in place in 2020.
Overall, thin supplies of crude oil, low storage and global output that is nearing a maximum are driving up prices, according to Mitsubishi UFJ Financial Group (MUFG).
Oil steady amid prospects of aggressive Fed rate hike
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