Oil Extends Drop Below $90 as Rate Concerns Overshadow Tightness

Oil fell for a fourth day as macroeconomic concerns overshadowed physical market tightness to cloud the demand outlook, Bloomberg reported.

West Texas Intermediate traded near $88 a barrel after declining by 2.2% in the previous session. A global rout in sovereign bonds and shares extended into Tuesday, while the dollar strengthened as traders digested messaging that the Federal Reserve will need to leave borrowing costs higher for longer.

WTI has now dropped around 6% since last Wednesday’s close on fears over the global economy, halting a rally that saw it surge by 29% last quarter on tight supply and had many analysts talking up the prospect of $100-a-barrel oil. Higher interest rates make it more expensive to store and ship crude and the strengthening dollar means it’s pricier for most buyers.

“Oil’s downward move has very little to do with fundamentals and all to do with rising Treasury yields and the stronger US dollar,” said Warren Patterson, head of commodities strategy at ING Groep NV. “I still think oil has some room to move higher. Fundamentally, it is looking constructive.”

Futures curves are still indicating near-term supply scarcity, but they’ve eased from last week. WTI’s prompt spread is $1.68 a barrel in the bullish backwardation structure, down from as much as $2.60 on Thursday.

Citigroup Inc. forecast Brent will fall to the low $70s per barrel next year as the market swings back to surplus. Demand looks constrained and there’s more oil coming into the market from non-OPEC+ suppliers, it said in a note.