Crude oil futures tumble after Powell signals 50 basis point interest rate hike

Crude oil futures tumbled in mid-morning Asian trade April 22, giving up some gains from the overnight session as financial markets turned jittery after US Federal Reserve chair Jerome Powell signaled aggressive interest rate hikes in the months ahead.

At 10:40 am Singapore time (0240 GMT), the ICE June Brent futures contract was down 67 cents/b (0.62%) from the previous close at $107.66/b, while the NYMEX June light sweet crude contract fell 68 cents/b (0.66%) at $103.11/b.

Powell said April 21 that the Fed stood ready to raise interest rates much more aggressively this year, starting with its next meeting over May 3-4.

"Fifty basis points will be on the table for the May meeting," Powell said at a meeting of the International Monetary Fund.

The comments sent financial markets tumbling overnight, with the Asian session picking up on the dour mood April 22. Most regional equity indices were starting the day in the red.

Analysts said investors were pricing in three back-to-back 50 basis-point hikes in the Fed's next three Federal Reserve Open Market Committee meetings.

"Red flags are going up today," SPI Asset Management Managing Partner Stephen Innes said in an April 22 note. "While one day certainly does not make a trend, when the market decides to focus on a super hawkish inflation-fighting Fed narrative stoking recession fears, it typically triggers significant shifts in investor behaviors and conversations, and markets then turn a lot more caution."

The Fed's increasingly aggressive stance in recent weeks on tightening monetary policy has rattled financial markets and raised the possibility of a economic recession, as tighter credit spur consumers and companies to rein in spending.

"What added on to the market jitters could be his stance that the process to restore price stability without creating a slowdown that amounts to a recession is 'going to be very challenging'," IG market strategist Yeap Jun Rong said in an April 22 note.

"This seems to highlight the heightened risks of restriction on economic activities brought about by policy tightening and having a soft-landing may be harder than what some may expect."

Nonetheless, fundamentals for oil markets pointed to further upside in oil prices. With no end in sight to the war in Ukraine and European Union nations making plans to phase out Russian oil, oil prices are likely to stay elevated for now.

"It is Friday, and typically, no one wants to go short oil into the weekend for fear of dreadful Ukraine weekend headline risk. So that suggests to me that oil holds a bid barring awful news out of China on the COVID front, where there seems to be some light at the end of the lockdown tunnel," SPI's Innes said.

Dubai crude swaps and intermonth spreads were lower in mid-morning trade in Asia April 22 from the previous close.

The June Dubai swap was pegged at $101.64/b at 10 am Singapore time (0200 GMT), down 56 cents/b (0.55%) from the April 21 Asian market close.

The May-June Dubai swap intermonth spread was pegged at $1.91/b at 10 am, down 23 cents/b over the same period, and the June-July intermonth spread was pegged at $1.52/b, down 15 cents/b.

The June Brent-Dubai EFS was pegged at $5.86/b, down 44 cents/b.