By Barani Krishnan
Investing.com - Oil prices fell more than 2% Monday as worries about the first impending U.S. rate hike in two years halted a rally that had carried on for five weeks with little more than a few stops.
Crude futures were down as much as 3% earlier in the day, joining stock markets melting down on fears that the Federal Reserve might be more aggressive than thought when it issues its first policy statement on Wednesday with regards to a rate hike after the Covid outbreak.
Even after stocks rebounded, oil remained lower.
The West Texas Intermediate benchmark for U.S. crude settled down $1.83, or 2.2%, at $83.31 per barrel. WTI earlier fell to $81.92.
London-traded Brent, the global benchmark for oil, settled down $1.62, or 1.8%, at $86.27 per barrel. Brent earlier fell to $84.22.
A similar dump happened in oil on Friday, with WTI losing as much as 5% at the session low. But a turnaround before the close that saw it closing off the lows.
This time though, the mood remained bearish though analysts weren’t sure if it would remain that way.
“It's been a remarkable rally and there's nothing to suggest that prices are peaking,” Craig Erlam, analyst at online trading platform OANDA, said, referring to the near 20% gain accumulated by crude markets over the past five weeks. “It's just come a long way in a short period of time but the fundamentals continue to look bullish.”
Aside from OPEC+ data pointing to under-investments in production that are hurting output by the 23-nation oil exporters’ alliance, crude prices are also supported by the geopolitics revolving around the potential war in Ukraine.
The Fed is tightening its balance sheet and hiking rates left at almost zero since the Covid-19 outbreak. In the interim period, the central bank has provided a stimulus of more than $2 trillion via bond and asset buying that combined with trillions more in federal pandemic aid has taken U.S. inflation to 40-year highs.
The selloff in stocks also coincides with a soft patch of fourth-quarter earnings for U.S. companies. The resultant effect has creamed Wall Street’s highly-prized Big Tech sector, with the Nasdaq index that used to be the darling of investors hitting near bear market territory at one point Monday with a loss of 19% from November record highs.