Oil rally hits brakes as U.S.-Canada pipeline reopens partially, dollar jumps

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By Barani Krishnan

AiVIF.com -- Oil’s three-day rally snapped on Thursday as the Keystone pipeline reopened from closure and risk assets from stocks to oil came under renewed pressure from a Federal Reserve bent on keeping interest rates up until inflation dropped convincingly. 

Both U.S. West Texas Intermediate crude and U.K. origin Brent oil fell as much as 2% on the day as the dollar rose for the first time this week.

At the close, Brent crude for delivery in February settled down $1.49, or 1.8%, at $81.21 per barrel. Earlier, it hit a session low of $80.86. The global crude benchmark had risen about 8% in the past three sessions before the rally paused. The rebound came after Brent fell 11% last week, hitting a low of $75.14 — a bottom not seen since Dec 23, 2021. 

WTI for delivery in January settled down $1.17, or 1.5%, at $76.11. Earlier, it hit an intraday low of $75.38. Like Brent, WTI rose a cumulative 8% in the past three sessions. The U.S. crude benchmark ended last week down $9.28, or 11%, making it its worst week since the week ended March 25. WTI’s session low for last week was $70.11 — a bottom not seen since Dec 21, 2021. 

Oil’s weakness on Thursday was tied to the resumption of operations on a section of the Canada-to-U.S. Keystone pipeline shuttered by TC Energy (NYSE:TRP) after a leak of more than 14,000 barrels of oil in Kansas.

"Crude prices edged lower as a section of the Keystone pipeline restarted and as global recession risks increased after a wave of central banks delivered another strong round of tightening," said Edward Moya, senior market analyst at data and analytics firm OANDA.

The European Central Bank announced a 50-basis point rate hike on Thursday and said it foresaw more of such hikes to keep a lid on inflation.

The Fed, on its part, also hiked rates by 50 basis points on Wednesday. But the increase represented a slowing in rates for the first time this year by the central bank, which imposed four back-to-back hikes of 75 basis points between June and November. Fed Chair Jerome Powell said on Wednesday rate hikes will likely be a staple for the central bank until there is a convincing and credible drop in inflation. 

The Fed tolerance for inflation is just 2% a year. But inflation, as measured by the Consumer Price Index, or CPI, grew by 7.1% in the year to November, although that was lower than the 40-year peak of 9.1% in June. The Fed, meanwhile, has hiked rates by 4.25% this year from a 0.25% base in March.