Oil prices erase gains as US Fed raises rates

Oil prices fell slightly Wednesday after 2:30 p.m. The Federal Reserve’s announcement IS of another three-quarters of a percentage point interest rate hike for the second time in a row, as Wall Street continued to flounder in its forecasts of what would come next, while the oil prices continued to rise.

As of 2:38 p.m. ET, WTI was trading up 2.19% on the day at $97.06 a barrel, with Brent crude trading up 2.03% on the day at $106.50 .

On June 15, the Fed made its biggest rate hike since 1994, raising rates by 75 basis points (three-quarters of a percentage point), with oil prices reacting slightly lower immediately after. Like today’s Fed announcement, Wall Street had already priced in June’s rate hike.

The first half of July saw oil prices fall despite stretched physical crude markets over fears that the global economy was heading into a recession. Fed rate hikes and the growing potential for oil demand destruction due to inflation pushed oil lower early last month.

Oil prices have fallen over the past month from above $111 a barrel as fears of recession have worried markets. But the tight physical market put a floor under those losses. Crude prices were trading on Wednesday ahead of the Fed’s announcement of bullish EIA data suggesting U.S. demand for crude oil was on the rise – boosted by robust exports – in a tight global market.

EIA inventory data released earlier today showed U.S. crude oil inventories fell by 4.5 million barrels in the week ending July 22, in addition to 5.6 million barrels that have been released from the country’s strategic oil reserves. Gasoline inventories also fell, following seasonal trends during the peak driving season in the United States.

By Charles Kennedy for Oilprice.com

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