Oil Snaps Rally as Investors Eye Federal Reserve Tapering

Oil steadied after the biggest three-day gain since March with falling U.S. crude and fuel stockpiles adding some positive signs.

Sheela Tobben

27 Aug 2021, 05:24 AM IST

Oil Snaps Rally as Investors Eye Federal Reserve Tapering

An oil pump jack operates at the Inglewood Oil Field in Culver City, California. (Photographer: Kyle Grillot/Bloomberg)

(Bloomberg) -- Oil declined, capping a three-day rally, as investors await a Federal Reserve address that may provide clues about its approach to paring stimulus.

Futures in New York slid 1.4% on Thursday after gaining nearly 10% over the previous three sessions. The Federal Reserve’s Jackson Hole symposium will offer insights on how the central bank will ease stimulus, a move that’s viewed as negative for commodities including oil. That concern is shifting investments toward the U.S. dollar.

Most of the gains this week came from funds exiting short positions to net out their activity before the meeting, according to traders. The aggregate trading volume for West Texas Intermediate futures was at the lowest level for the year on Thursday.

Since the Federal Reserve has indicated it’s considering reducing asset purchases, the market is “back to worrying about that,” said Bob Yawger, director of the futures division at Mizuho Securities. “The rally we saw this week was basically on thin liquidity, and therefore, wouldn’t have lasted anyway.”

Oil has been volatile this month, clawing back some losses this week after the worst streak of declines since October 2019. The European Union will discuss on Thursday whether to reimpose curbs on U.S. visitors as virus cases spike, while the oil market will be looking for any changes to production policy from the OPEC+ alliance when the group gathers on Sept. 1.

Most Federal Reserve officials agreed last month they could start slowing the pace of bond purchases later this year, judging that enough progress had been made toward their inflation goal, while gains had been made toward their employment objective, according to the minutes of the FOMC’s July 27-28 meeting.

Prices
West Texas Intermediate for October delivery decreased 94 cents to settle at $67.42 a barrel in New York. Brent for October settlement fell $1.18 to end the session at $71.07 a barrel.

Meanwhile, shrinking U.S. stockpiles, a rebound in Indian demand and China’s containment of its latest outbreak are providing some positive signs for the market, but virus-related restrictions on mobility still remain in place in many regions.

Key market news:
PetroChina Co., the nation’s largest oil company, will press forward with a plan to decarbonize its business, including an aggressive pledge that oil, gas and new energy will each take a third of its portfolio by 2035. A budding storm in the Caribbean is threatening to become a powerful hurricane that will wreak havoc in the Gulf of Mexico and slam into Louisiana or Texas early next week.