Oil Drops as Rate Jitters Drown Out Halt to Poland Pipe Supplies

(Bloomberg) —

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Oil fell as concerns that the Federal Reserve will keep on raising US interest rates to combat inflation eclipsed the latest disruption to supplies in Europe and optimism over a demand recovery in China.

West Texas Intermediate sank below $76 a barrel after failing to hold early gains. While Poland’s largest oil company, PKN Orlen SA, unexpectedly stopped receiving oil via the Druzhba pipeline from Russia, traders remain anxious that still-evelated US inflation will compel the Fed to go on raising rates. That may aid the dollar, trigger a US recession, and hurt commodities.

Crude has traded within a tight $10 range so far this year as investors weigh a welter of conflicting forces, including the outlook for supplies from Russia, China’s reopening, and the trajectory of monetary policy. The market’s prospects will come into focus over the coming days as traders congregate in London for International Energy Week, one of the industry’s marquee events.

“The series of upside surprises in US inflation thus far has called for another round of hawkish recalibration in rate hike expectations,” said Yeap Jun Rong, market strategist for IG Asia Pte in Singapore. Still, any better-than-expected recovery in China’s economy could support the outlook for demand, he said.

While the European Union has banned shipments of Russian crude and petroleum products by sea, some pipeline flows have remained. Poland has repeatedly said it plans to end Russian oil imports entirely, and Orlen said consumers won’t be impacted by the halt, for which it said it had prepared.

With sanctions on Russia tightening, Europe imported large amounts of diesel in February by boosting shipments from Asia and the Middle East. The curbs on Russia haven’t really “bitten that hard” because China, India and Turkey haven’t joined in, former US Treasury Secretary Lawrence Summers said.

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