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Oil slumps over 3% on U.S. rail agreement, demand concerns

Commodities Sep 15, 2022 03:26PM ET
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© Reuters. General view of oil tanks and the Bayway Refinery of Phillips 66 in Linden, New Jersey, U.S., March 30, 2020. REUTERS/Mike Segar
 
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By Scott DiSavino

NEW YORK (Reuters) -Oil futures fell over 3% to a one-week low on Thursday on a tentative agreement that would avert a U.S. rail strike, expectations for weaker global demand and continued U.S. dollar strength ahead of a potentially large interest rate increase.

Brent futures fell $3.26, or 3.5%, to settle at $90.84 a barrel, while U.S. West Texas Intermediate (WTI) crude ended $3.38, or 3.8%, lower at $85.10, the lowest closes for both benchmarks since Sept. 8.

Major U.S. railroads and unions secured a tentative deal after 20 hours of intense talks brokered by President Joe Biden's administration to avert a rail shutdown that could have hit food and fuel supplies across the country and beyond.

The prospect of a strike lent the market some support on Wednesday.

That rail deal also helped pressure U.S. diesel and gasoline futures to drop more than 5% during the session.

"The oil complex is drafting back down on U.S. dollar strength and the tentative agreement that would avert a U.S. rail workers strike," analysts at energy consulting firm Ritterbusch and Associates said, noting crack spreads were weak.

The U.S. 3:2:1 crack spread - a measure of refining profit margins - was on track for its lowest close since early March.

Downside risks continue to dominate the global economic outlook and some countries are expected to slip into recession in 2023, but it is too early to say if there will be a widespread global recession, according to the International Monetary Fund (IMF).

World Bank Chief Economist Indermit Gill said he was concerned about "generalized stagflation," a period of low growth and high inflation, in the global economy, noting the bank had pared back forecasts for three-fourths of all countries.

Wall Street indexes were in the red while the dollar held near the 20-year high it hit on Sept. 6 as a slew of economic data pointed to resilience in the U.S. economy which could keep the Federal Reserve on track for aggressive interest rate hikes. [nL4N30M33J] [USD/] [MKTS/GLOB]

A strong dollar reduces demand for oil by making the fuel more expensive for buyers using other currencies.

"Oil fundamentals are still mostly bearish as China’s demand outlook remains a big question mark and as the inflation fighting Fed seems poised to weaken the U.S. economy," said Edward Moya, senior market analyst at data and analytics firm OANDA.

The International Energy Agency (IEA) said this week that oil demand growth would grind to a halt in the fourth quarter. [IEA/M]

Crude prices have dropped substantially after a surge close to its all-time highs in March after Russia's invasion of Ukraine added to supply concerns, pressured by the prospects of recession and weaker demand.

Other factors weighing on oil prices included an increase in U.S. crude inventories and an expected reduction in energy use by the Ethereum blockchain. [EIA/S]

The European Union's executive, meanwhile, plans to raise more than 140 billion euros ($140 billion) to shield consumers from soaring energy prices by skimming off revenue from low-cost electricity generators and making fossil fuel firms share windfall profit.

Oil slumps over 3% on U.S. rail agreement, demand concerns
 

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Comments (7)
EL LA
EL LA Sep 15, 2022 9:57AM ET
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So then it must be time for OPEC+ to slash supply bigly.
Andrew Ulferts
Andrew Ulferts Sep 15, 2022 9:36AM ET
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Demand concerns have been so bad since Covid, our SPR was drained at a record clip. Commercial stockpiles too.
Royce Murph
Royce Murph Sep 15, 2022 9:36AM ET
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Exactly, another Biden article. Cant make this sh&$ up.
Am Kh
Am Kh Sep 15, 2022 8:27AM ET
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Amazing how they keep changing the title of the same article for every 1% change in either direction- with fears being the main drive for every move. Great journalism!
Royce Murph
Royce Murph Sep 15, 2022 8:27AM ET
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LMAO. Exactly, all paid bu the Biden administration, ultimately our taxes.
Royce Murph
Royce Murph Sep 15, 2022 7:28AM ET
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How much does the biden administration pay you to write these rediculous articles.
Rashed Lala
Rashed Lala Sep 15, 2022 3:15AM ET
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Hey Laura, As you states low Oil prices... Now Bull will start their run in couple of hours
Rashed Lala
Rashed Lala Sep 15, 2022 3:14AM ET
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Hey Laura, As you states low Oil prices... Now Bull will start their run in couple of hours
perplexed76 .
perplexed76 . Sep 15, 2022 12:10AM ET
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looks like no hurricane season this year. Oil "investors" are mad and have to think stupid excuses lol
 
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