By Barani Krishnan
Investing.com - It looks like the oil rally isn’t immune to fears about U.S. rate hikes — especially if they’re going to be big hikes.
St. Louis Fed President James Bullard not only delivered a kryptonite to the stock market on Thursday with his call for a 100-basis point hike by July, if the central bank doesn’t succeed in making a ding on inflation running at 40-year highs.
Bullard also practically killed oil’s comeback rally, after three days of dreary performance in crude markets triggered by concerns that Iran may be able to end U.S. sanctions that were keeping from the market between one million and two barrels daily from Tehran.
Until Bullard spoke, in a Bloomberg News interview on Thursday, markets had been pricing in a maximum 50 basis points for any rate hike the Federal Reserve will be doing this year.
That the voting member of the Fed’s Federal Open Market Committee would push for an increase double than telegraphed to markets was unnerving enough to Wall Street that it reversed a 1% rally on the S&P 500 from earlier in the day, sending it down 1% instead.
The oil rally, which had operated quite independently of the stock market for months by following its own bullish demand drivers, got pulled down as well this time.
New York-traded West Texas Intermediate settled up just 22 cents, or 0.3%, at $89.88 per barrel. Despite the January reading for the U.S. Consumer Price Index showing new highs since 1982, WTI rallied more than $2 earlier in the day, reaching a session peak of $92.74 earlier. That was, of course, before Bullard’s comments.
London-traded Brent, the global benchmark for oil, settled down 14 cents, or 0.2%, at $91.41. Brent rallied to as high as $93.06 earlier.
Week-to-date, both WTI and Brent were down about 2% each.
For the year though, the U.S. crude benchmark remained up almost 20% while its U.K. peer showed an 18% gain.