Oil futures: Crude retreats on rate hike fears, firmer dollar

2 Oct 2023

Quantum Commodity Intelligence – Crude oil futures Monday were in retreat as concerns over higher interest rates returned while the US dollar soared, hiking costs for oil importers.

Front-month Dec23 ICE Brent futures were trading at $90.70/b (1830 GMT), compared to the day's range of $90.62-$93.33/b and Friday's settle of $92.20/b.

At the same time Nov23 NYMEX WTI was trading $88.77/b versus Friday's settle of $90.79/b, as the Dollar Index hit fresh yearly highs close to 107 points after publication of the ISM Manufacturing PMI report for September which beat expectations, raising the prospect of a rate hike next month.

"Both benchmarks are consolidating at lower levels after an explosive multi-week rally. This decline in sentiment, coupled with several economic potholes lying in wait, has finally added an element of two-way risk in oil markets," said Stephen Innes, managing partner SPI Asset Management.

Brent had posted a 2023 high of $97.69/b last Wednesday but the broader energy selloff, along with an approximately $2/b Nov23/Dec23 roll has pulled headline prices back, but still at levels OPEC+ is likely to be comfortable with ahead of this week's OPEC committee meeting.

The OPEC+ JMCC technical group meets on 4 October and while the group has left the door open to monthly reviews, there is little prospect of a recommendation to increase output until at least next year, while current cuts may also be extended at some point and maintain the supply/demand deficit.

"Should a material non-OPEC+ supply response emerge then some of the current tightness in oil markets could dissipate though we wouldn't rule out OPEC+ countries extending their cuts across 2024 at this time," noted Edward Bell, Senior Director at Emirates NBD.

Markets steadied earlier after the US narrowly avoided a damaging shutdown of federal agencies as Congress passed a budget compromise to keep the government operational until the middle of next month.

Last week, ratings agency Moody's warned that a government shutdown would have negative implications for US credit ratings, which came after Fitch downgraded from AAA to AA+ in August due to ongoing political standoffs over the nation's debt ceiling.

Meanwhile, a slowdown in Eurozone inflation during September was offset by continued weak economic confidence, pointing to further subdued growth trends.