Oil slips as bearish signals compound despite Putin's escalation

Oil erased gains ahead of a U.S. Federal Reserve meeting that is expected to signal a continuation of measures to restrain economic growth, overshadowing Russia’s threat to escalate a war that is disrupting energy supplies.

West Texas Intermediate fell below US$84 Wednesday, reversing an earlier rise to over US$86 a barrel fed by Vladimir Putin’s call for substantially more troops. Broader equity markets are in wait-and-see mode as the central bank is expected to raise interest rates by 75 basis points. Such a move could trigger an economic recession and depress oil demand, which is already showing signs of slowing down. 

US crude stockpiles rose last week, while diesel demand fell to the lowest seasonal point in a decade. The drop comes when consumption typically picks up. A counterseasonal decline for demand, which is often seen as a proxy for economic activity, suggests that soaring inflation is hitting the industries that are powered by the fuel.

“Macro markets are definitely the elephant in the room right now with rates and the dollar really keeping a lid on crude rallies,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth Management.