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Oil Swings as ‘Powell Factor’ Plays Against ‘Putin Fear’

Commodities Sep 21, 2022 04:28PM ET
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By Barani Krishnan

Investing.com -- In its most simplistic form, Wednesday’s swings in oil could be described as the Jerome Powell factor playing against the fear of Vladimir Putin.

As Federal Reserve Chair, Powell warned Americans to brace for higher-for-longer interest rates after the central announced a anticipated 75-basis point hike as expected for September. The Fed isn’t alone with tightening though: Central banks in the United Kingdom to Switzerland are contemplating higher rates too this week.

Oil traders have to determine whether all that represent a more clear and present danger to their market than the potential disruptions that could come to Russia’s already sanctions-hampered oil exports from President Putin’s plan to place some 300,000 of his country’s army reservists on alert for Ukraine duty to ensure he doesn’t lose the war there.

An across-the-board increase in U.S. crude, gasoline and distillate stockpiles announced by the Energy Information Administration for last week drove oil prices toward the January lows hit a fortnight ago before pulling back in Wednesday’s session.

New York-traded West Texas Intermediate, which serves as the U.S. crude benchmark, settled down $1, or 1.2%, at $82.94 per barrel. WTI earlier hit a session low of $82.60, nearing the seven-month low of $81.20 it hit on Sept 8.

Brent, the London-traded global benchmark for oil, settled down 79 cents, or 0.9%, at $89.83, versus its intraday low of $89.32.

“There's no doubt that the next day or so offers crucial rate announcements from major central banks around the world and only one is expected to resist the urge to change anything. Even the Bank of Japan could be tempted to surprise the markets with a small tweak to its yield curve control policy tool, although that looks very unlikely at this point in time given recent statements,” said Craig Erlam, analyst at online trading platform OANDA.

“It's the Federal Reserve that is the talk of the town today though,” he added.

The Fed’s long-declared goal for inflation is 2%. No one is sure how long it would take for the central bank to get there and if it will even be possible by 2024. 

The central bank’s performance in battling inflation has, however, been far from convincing. 

Even after the Fed’s 75-bp hike in June, inflation, as measured by the Consumer Price Index, peaked at an annualized of 9.1% that month, marking a new four-decade high (the CPI data is typically lagged by a month, to be sure). Price pressures have come down since, with the CPI slowing to an annualized 8.5% in July and 8.3% in August. But its retreat of 0.8% over two months versus two rate hikes totaling 1.5% — is dismal, to say the least.

US interest rate hikes have some ways to go before the Fed considers a pause or reduction, with the likelihood of another 125 basis points being added before the end of this year, Chairman Powell told reporters after the September meeting of the Fed's policy-making Federal Open Market Committee, or FOMC.

Powell's comments came after the FOMC announced a third straight 75-basis point rate hike since June. It was the fifth hike for the year that brought key lending rates to a peak of 3.25% from a mere 0.25% in February.

Of course, the Fed could keep adding 75-bp increments to its remaining rate decisions for November and December to round out the year with rates ranging at 4.50-4.75%, compared to the zero to 0.25% it began 2022 with. Yet, it’s anyone’s guess where the CPI could be at that point. An educated guess would put it below 8% for sure, though there is still a good chance it would not be lower than 7.5%. 

Putin said he had signed a decree on partial mobilization, saying he was defending Russian territories and that the West wanted to destroy the country.

"The oil complex (advanced) largely off Putin’s apparent escalation of the Ukraine war," analysts at energy consulting firm Ritterbusch and Associates said in a comment carried by Reuters, noting the strong dollar and expected higher U.S. interest rates will limit oil price gains.

Oil Swings as ‘Powell Factor’ Plays Against ‘Putin Fear’
 

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Comments (5)
Jan Rokyta
Jan Rokyta Sep 21, 2022 4:44PM ET
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It seems like Putin is doing ethnic cleansing in Russia. I wonder where he stands on this issue?
Barani Krishnan
Barani Krishnan Sep 21, 2022 4:44PM ET
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No one who has m(urdered) by thousands has ever admitted to genocide
ge Kret
ge Kret Sep 21, 2022 4:32PM ET
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$120 oil by the middle of October!
Barani Krishnan
Barani Krishnan Sep 21, 2022 4:32PM ET
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I think the war and how it goes will determine that
EL LA
EL LA Sep 21, 2022 4:32PM ET
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JPMorgan CEO Jamie Dimon just called for more investment in oil and gas: 'We aren't getting this one right'
Don Getty
Don Getty Sep 21, 2022 2:55PM ET
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lol, Putin is about to give guns to 300k young russians who don't support his war - that may not work out the way he wants
Barani Krishnan
Barani Krishnan Sep 21, 2022 2:55PM ET
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It's getting really interesting now, the war.
Mike Kamion
kamisha Sep 21, 2022 2:55PM ET
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You don't know Russia and Russian people. They support the military operation. Be sure, they will fight well.
Tom Michaels
Tom Michaels Sep 21, 2022 2:42PM ET
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watch out, the censorship is going on.
Tom Michaels
Tom Michaels Sep 21, 2022 2:42PM ET
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It's all a charade, Putin is a good guy. There's scum in Ukraine that need to be eradicated.
 
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