Investing.com - Oil prices fell about 2% Wednesday, the sharpest drop in more than a week, as threats to crude supply from Hurricane Michael and Iranian sanctions were dwarfed by worries about more hawkish U.S. monetary policy and slowdown in world growth that hit equities.
U.S. Treasury yields rebounded to near multi-year highs, putting the brakes again on Wall Street’s run of the past few weeks. Rising producer prices were anotehr reason for the Federal Reserve to continue with rate increases.
And the International Monetary Fund cut its global economic growth forecasts for 2018 and 2019 on Tuesday, raising concerns that demand for oil may also slump.
“It’s the broader markets story today and that’s bigger than any immediate worry about what Hurricane Michael or Iranian sanctions could do to oil,” said Tariq Zahir, managing member at Tyche Capital Advisors, a New York oil fund that makes bets on shifting spreads between different trading months in U.S. crude futures.
West Texas Intermediate (WTI), the U.S. benchmark for crude, settled down $1.79, or 2.4%, at $73.17 on the New York Mercantile Exchange. It was the sharpest drop since Oct. 1.
Global crude benchmark Brent, traded in London, was down $2.03, or 2.4%, at $82.97 by 2:49 PM ET (18:49 GMT).
The slide came despite reports that energy companies in the U.S. Gulf Coast of Mexico had turned off daily production of about 670,800 barrels of oil and 726 million cubic feet of natural gas in a shutdown forced by approaching Hurricane Michael.
Described as an "extremely dangerous" Category 4 storm, Michael is predicted to bring devastation hitherto unseen at the Panhandle, a 200-mile strip on northwest Florida that’s home to the state’s largest crude and natural gas fields. Nearly 40% of daily crude output in the Gulf has been disrupted since Tuesday from platform evacuations and shut-ins, officials said.
Upcoming U.S. sanctions against Iranian oil exports were also biting harder and quicker than thought, according to a Bloomberg report, which said up to 2 million barrels a day -- double early forecasts -- could be lost in the embargo officially beginning Nov. 4.
Even so, Reuters reported that the heads of the world's biggest trading houses were not sure that oil could continue rallying from the supply squeeze, with some expecting demand destruction to set in at above $100 per barrel.
Jeremy Weir, chief executive of Trafigura, said he wouldn’t be surprised to see more than $100 for a barrel next year and Alex Beard, chief executive for oil and gas at Glencore (L:LON:GLEN) forecast between $85 and $90. But Torbjorn Tornqvist, CEO of Gunvor, sees lower prices in a range of $70-$75 next year, citing a slowdown in demand growth and a well-supplied market. Vitol was most bearish, with chairman Ian Taylor forecasting $65 in 2019.
Traders and investors will be on the lookout later Wednesday for a snapshot on weekly crude stockpiles from the American Petroleum Institute (API), ahead of official data on Thursday from the U.S. government’s Energy Information Administration. The market expects a crude build of 2.7 million barrels last week vs. 8 million barrels the previous week, forecasts show.
In other energy trading, NYMEX RBOB gasoline fell 2.5% to 2.02 per gallon, while heating oil, a proxy for diesel and distillates, shed 1.3% to 2.39 per gallon. Natural gas bucked the trend across energy markets, rising 0.1%, to 3.27 per million metric British thermal units.