(Bloomberg) – Oil fell after four weekly gains as traders weighed the prospects of another Federal Reserve hike against signs of market tightening.
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West Texas Intermediate fell below $77 a barrel after closing at a three-month high on Friday. The rally was driven by expectations that OPEC+ supply cuts would reduce inventories, with International Energy Agency Executive Director Fatih Birol saying over the weekend that the market could slip back into deficit.
U.S. central bank policymakers are widely expected to raise rates further at this week’s meeting as part of their efforts to rein in inflation and provide guidance on the likelihood of further moves. The tightening cycle risks tipping the world’s largest economy into recession, which could hurt demand.
Oil remains lower this year despite the recent series of gains and production cuts by the Organization of the Petroleum Exporting Countries and its allies, including Russia. On the demand side, China’s stalled recovery has been a persistent headwind for industrial commodities, including crude.
“Expectations of a Fed rate hike may put some pressure on the market, but this hike should already be largely priced in,” said Warren Patterson, head of commodity strategy at ING Groep NV. “Ultimately, we believe oil prices will head higher given the tightening fundamentals. However, there is strong technical resistance in the near term, in the form of the 200-day moving average.”
The US benchmark WTI approached the 200-day moving average in April, but failed to close above it. Prices have approached the figure again this month, which is under 30 cents. A similar challenge looms for Brent.
Among other measures, there are signs of strength in the underlying market structure. WTI’s rapid spread — the difference between its two closest contracts — was 30 cents a barrel in backwardation, an uptrend that’s been at its widest since mid-November on a closing basis.
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