Oil prices fall after Powell highlights credit risks

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Oil prices fall after Powell highlights credit risks

SINGAPORE Oil prices fell on Thursday after Federal Reserve Chair Jerome Powell highlighted banking sector credit risks for the world's largest economy, while U.S. crude stocks rose more than expected.

By 0420 GMT, Brent crude futures fell by 66 cents, or 0.9 per cent, to $76.03 a barrel, while U.S. West Texas Intermediate crude WTI dropped 74 cents, or 1.0 per cent, to $70.16.

Both crude benchmarks settled on Wednesday at their highest level since March 14 after the dollar fell to a six week low.

Economic risks were flagged out in the Fed meeting, while higher-than-expected U.S. crude oil stockpiles dampened some optimism around demand outlook, said Yeap Jun Rong, market strategist at IG.

The weakness in the dollar has helped drive some resilience in oil prices, with room left for upside in oil prices due to dip-buying seen at the beginning of this week, according to Yeap.

The Fed raised interest rates by a quarter of a percentage point, while the Fed indicated that it was about to pausing further increases in borrowing costs due to recent turmoil in financial markets spurred by the collapse of two U.S. banks.

Powell said on Wednesday that banking industry stress could cause a credit crunch, with significant implications for an economy that U.S. central bank officials projected would slow down even more this year than previously thought.

Data from the Energy Information Administration EIA shows that the U.S. crude oil stockpiles rose unexpectedly last week to their highest in nearly two years.

In the week to March 17, the inventories of crude increased by 1.1 million barrels to 481.2 million barrels, the highest since May 2021, the highest since May 2021. In a Reuters poll, analysts had predicted a 1.6 million-barrel drop.

Citi analysts said on Thursday that despite all of the bearish chatter over the U.S. oil production growth outlook for 2023, overstating cost inflation and lower capex capital expenditure the latest EIA weekly report confirms the pivotal role of U.S. oil for global oil markets.

EIA data shows that gross exports of crude oil and oil products hit a new high just shy of 12 million barrels per day, a new high that is well above any other country's supply levels, according to analysts.