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Oil prices settle down on fears of Fed and oil profit tax

Commodities Jun 14, 2022 04:11PM ET
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© Reuters. FILE PHOTO: An aerial view shows an oil factory of Idemitsu Kosan Co. in Ichihara, east of Tokyo, Japan November 12, 2021, in this photo taken by Kyodo. Picture taken on November 12, 2021. Mandatory credit Kyodo/via REUTERS

By Laura Sanicola

(Reuters) -Oil prices settled lower on Tuesday on fears the U.S. Federal Reserve will surprise markets with a higher-than-expected interest rate hike.

Most Fed watchers had expected the U.S. central bank to hike rates by 50 basis points at its meeting on Wednesday. But after Friday's surprisingly strong consumer price index (CPI) data for May, more expect a rate hike of 75 basis points.

Brent crude futures settled down $1.10, or 0.9%, to $121.17 a barrel. U.S. West Texas Intermediate (WTI) crude fell $2, or 0.7%, to settle at $118.93 a barrel

"This fear of an even greater basis point hike is driving down equities and oil," said John Kilduff, partner at Again Capital LLC in New York.

Oil prices were pressured by reports that U.S. Senate Finance Committee chair Ron Wyden plans to introduce legislation setting a 21% surtax on oil company profits considered excessive, an aide told Reuters.

The bill would apply a 21% additional tax on excess profits of oil and gas companies with more than $1 billion in annual revenue, the aide said.

Tight supply has been aggravated by a drop in exports from Libya amid a political crisis that has hit output and ports.

Other OPEC+ producers are struggling to meet production quotas and Russia faces bans on its oil over the war in Ukraine.

The U.S. Department of Energy (DOE) also announced the fourth Notice of Sale of 45 million barrels of crude oil from the Strategic Petroleum Reserve.

UBS raised its Brent price forecast to $130 a barrel for end-September and to $125 for the subsequent three quarters, up from $115 previously.

"Low oil inventories, dwindling spare capacity, and the risk of supply growth lagging demand growth over the coming months have prompted us to raise our oil price forecast," the bank said.

Ratings agency Fitch raised its Brent and WTI price assumptions for 2022 by $5 to $105 and $100 a barrel, respectively.

The market awaited weekly reports from the American Petroleum Institute on Tuesday and the U.S. Energy Information Administration on Wednesday for U.S. crude and fuel inventory data.

Six analysts polled by Reuters forecast U.S. crude inventories to have fallen by 1.2 million barrels last week, while gasoline stockpiles rose 800,000 barrels and distillate inventories, which include diesel and heating oil, were unchanged.

On the demand side, China's latest COVID outbreak traced to a bar in Beijing has raised fears of a new phase of lockdowns.

In its monthly report, the Organization of the Petroleum Exporting Countries kept to its forecast that world oil demand will exceed pre-pandemic levels in 2022, but said Russia's invasion of Ukraine and developments related to the coronavirus pandemic pose a considerable risk.

The group sees demand growth slowing next year, OPEC delegates and industry sources told Reuters, as surging oil prices help drive up inflation and act as a drag on the global economy.

Oil prices settle down on fears of Fed and oil profit tax
 

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Comments (11)
Mansoor Asim
Mansoor Asim Jun 14, 2022 7:06PM ET
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will oil touch 105 today???
John Hemphill
John Hemphill Jun 14, 2022 5:51PM ET
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0.7% is 'Settling down'? No, $100 per barrel with a solid downward trajectory is settling down. The only way to get back on track is the oil under our feet and the XL pipeline. Tax on excess profits? No, passed onto the consumer when demand is high and supply is low. If Exxon, for example, had 'excess profits' their share price would be $120 like it was a few years ago. Economics 101.
Meru Pet
Meru Pet Jun 14, 2022 4:41PM ET
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taxes reduce prices, it is well known... 🙄
Matt Kay
Matt Kay Jun 14, 2022 12:36PM ET
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Lets goooo recession! Back in 2008 we reached 140 before manipulated house of cards collapsed. Getting closer! Woot
Jon Bal
Jon Bal Jun 14, 2022 12:36PM ET
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back in '08 everyone said its the traders fault
Roger Miller
Roger Miller Jun 14, 2022 11:30AM ET
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Imagine how quick energy prices would fall if western governments ended their sanctions on Russia. Not arguing they should.
trevor hron
trevor hron Jun 14, 2022 11:30AM ET
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Would definitely play a huge factor. Stopping the oil embargo. Get prices under control to tame inflation so it buys time for everyone to make the pivot to more green energy. With more solar and wind farms along with utilities scale batteries would be a major help in the world energy mix.
Don Getty
Don Getty Jun 14, 2022 11:30AM ET
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then why would you make such a weird comment - commrade
Minh Nguyễn
Minh Nguyễn Jun 14, 2022 11:07AM ET
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Anyone who expect oil to go up is devil
Eduff San
Eduff San Jun 14, 2022 10:54AM ET
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Tight supply is my happiness. Oil always going up
orija damilare
orija damilare Jun 14, 2022 5:34AM ET
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Oil has gone against every odds that seems to bring it down, still waiting on that huge sell-off
Ying Yu
Ying Yu Jun 14, 2022 3:59AM ET
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A bull trap from Goldman to sell immature investors their position at the highest price
Meru Pet
Meru Pet Jun 14, 2022 3:59AM ET
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what? oil stocks?
Fahmi Yazit
Fahmi Yazit Jun 14, 2022 2:44AM ET
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China lockdown price still up...surely something wrong. Just lift the Iran sanction..so that Opec got competitor..as so balance the oil price. Low down ur ego for the sack of people..Biden.
 
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