Oil reverses rally, falls 2% on profit taking, interest rate worries


By Scott DiSavino

NEW YORK (Reuters) -Oil futures slid about 2% on Thursday, as traders took profits after prices earlier soared to 10-month highs and some worried that high interest rates may weigh on western economies and oil demand.

On its second to last day as the front-month, Brent futures for November delivery fell $1.65, or 1.7%, to $94.90 a barrel by 1:51 p.m. EDT (1751 GMT).

Brent December futures , which will soon be the new front-month, were down 1.6% to $92.90 per barrel.

U.S. West Texas Intermediate crude (WTI) fell $2.20, or 2.4%, to $91.48 per barrel.

Earlier in the session, the Brent front-month hit $97.69, its highest since November 2022 and WTI to its highest since August 2022 at $95.03 on scarce supply and inventory declines.

“Oil was ripe for a pullback. After coming a few dollars short of the $100 level, energy traders are quickly locking in profits,” Edward Moya, senior market analyst at data and analytics firm OANDA, said in a note.

The market is worried that high oil prices will encourage U.S. Federal Reserve and other central banks to persist with high interest rates to curb sticky inflation.

“Crude is now serving as a catalyst for bearishness … as investors view high oil prices as reason for the Fed to persist with high rates for longer than originally planned in order to curb inflation,” analysts at energy consulting firm Gelber & Associates said in a note.

The U.S. economy maintained a fairly strong 2.1% pace of growth in the second quarter and appears to have gathered momentum this quarter with a resilient labor market driving strong wage gains.

Growth estimates for the July-September quarter are currently as high as a 4.9% rate. But the fourth quarter could see a sharp slowdown if there is a U.S. government shutdown on Oct. 1 due to infighting among Republicans in the House of Representatives.

Fed officials are focused on the super core price measure after hiking the benchmark overnight interest rate by 525 basis points since March 2022 to the 5.25%-5.50% range.


The premium of the WTI front-month over the second month held near a 14-month high for a second day. The market structure called backwardation occurs when spot prices are higher than future prices, giving energy firms little incentive to pay to store fuel for future months.

On Wednesday, WTI backwardation soared 32% to $2.38 a barrel, the highest since the end of July 2022, after government data showed stocks at the Cushing, Oklahoma, storage hub and delivery point for U.S. crude futures, extended their drawdown, also to the lowest since July 2022. [EIA/S]

“Cushing storage has shrunk to a historically low level, leading to a further increase in backwardation in the WTI curve,” analysts at Barclays, a bank, said in a note.

“In the absence of a demand shock, it might take a sustained further narrowing of the WTI-Brent spread for a material turnaround in storage level at Cushing to occur,” Barclays said.

Cushing’s levels have been falling to near historic lows due to strong refining and export demand, prompting concerns about quality of the remaining oil.

Meanwhile, tight prompt U.S. supplies have also narrowed the premium of Brent over WTI held near a five-month low after falling to $2.87 per barrel on Wednesday, its lowest since late April.

Falling U.S. crude inventories follow combined cuts of 1.3 million barrels per day to the end of the year by Saudi Arabia and Russia, part of OPEC+, the Organization of the Petroleum Exporting Countries (OPEC) and allies.

Russia said its ban on fuel exports will remain in place until the domestic market stabilizes and noted it has not discussed with OPEC+ a possible supply increase to compensate for that fuel export ban.

(Reporting by Scott DiSavino in New York, Natalie Grover in London, Florence Tan in Singapore and Mohi Narayan in New Delhi; Editing by Marguerita Choy and David Gregorio)

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