Reasons behind Fed decision worry oil traders
Oil futures on Friday saw their largest daily drop in almost three weeks as the U.S. Federal Reserve’s decision to keep interest rates unchanged raised worries about the U.S. economy—and energy demand.
Prices failed to find much support even after data released Friday showed a third straight weekly decline in active U.S. oil-drilling rigs.See also yesterday's "A Quick Note On the Petroleum Complex" on the gasoline building up in storage.
October West Texas Intermediate crude CLZ5, -3.73% settled at $44.68 a barrel, down $2.22, or 4.7%, on the New York Mercantile Exchange. Prices, which suffered from their largest daily point and percentage loss since Sept. 1, settled a nickel, or 0.1%, higher than the week-ago settlement of $44.63.
On London’s ICE Futures exchange, November Brent crude LCOX5, -2.65% fell $1.61, or 3.3%, to $47.47 a barrel, with the contract losing 3.2% for the week.
In the immediate aftermath of the U.S. central bank’s late Thursday decision, the U.S. dollar DXY, +0.75% weakened, which should have been supportive for dollar-denominated oil prices.
“Ironically, oil prices slumped at the Fed announcement, suggesting that traders in oil responded to the weak economic outlook and no inflation,” said Jeff Born, a professor from the D’Amore-McKim School of Business at Northeastern University.
“Oil prices generally don’t benefit from uncertainty or instability, so this price reaction is most understandable,” he told MarketWatch in an email. “Oil price weakness this year is reflecting slowing economic activity in Europe and Asia, combined with production by Middle East producers,” who are intent on blunting the gains in energy-market share made by the USA....MORE