Oil tumbled again, dropping to the lowest level since May as the U.S. Federal Reserve signaled it was set to start tapering asset purchases within months, hurting commodities and lifting the dollar.
West Texas Intermediate futures fell 3.7%, declining for a sixth straight day and sinking in tandem with equities and other commodities like copper and iron ore. The Fed delivered a fresh blow to crude, which had already been weakening as the delta virus variant hits demand in Asia. A surprise jump in U.S. gasoline stockpiles underscored the risks.
Oil’s impressive rally in the first half of the year has lost momentum in July and August amid the threat to demand posed by spread of delta, including in key importer China. Gains in the dollar in recent weeks have also acted as a brake on prices, making commodities priced in the U.S. currency more expensive. At the same time, OPEC+ has pushed ahead with gradually restoring supplies.
“Economic growth concerns, stronger dollar and a risk-off environment are not helping oil,” said Giovanni Staunovo, an analyst at UBS Group AG. “Demand will continue to recover in an uneven way over the coming weeks and the oil market remains undersupplied. So that should still support prices down the road.”
- WTI for September delivery fell $2.39 to $63.07 a barrel as of 10:24 a.m. London time
- Brent for October settlement declined $2.13 to $66.10 a barrel
- The Bloomberg Dollar Spot Index rose 0.4%, climbing for a fourth day
To cushion the U.S. economy from the blow inflicted by the pandemic, the Fed has been buying $120 billion of assets every month, buoying commodities and stocks. The minutes of the meeting showed that most participants now judged it could be appropriate to start reducing them.
“The overall environment was fragile to begin with, so I think the Fed minutes yesterday just added another layer of fragility to that,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “It’s just broad risk aversion across markets.”