Crude oil futures and crude ETFs are falling sharply on Thursday, after reaching their highest levels in years, as the U.S. dollar firmed up following Federal Reserve implying that it could raise interest rates as soon as 2023.
Brent futures fell $1.18, or 1.6%, to $73.21 a barrel early in the session, while U.S. West Texas Intermediate (WTI) crude has continued to tumble, down 3.23%, to $69.82 a barrel as of 12:45 PM EST.
The moves are driving crude oil ETFs like the United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil (UCO) lower on Thursday as well, while one inverse crude ETF, the ProShares UltraShort Bloomberg Crude Oil (SCO), is surging, up more than 5%.
On Wednesday, Brent settled at its highest level since April 2019 and WTI at its highest point since October 2018, coming just shy of $73 a barrel.
The U.S. dollar also climbed to its highest level since mid-April, trading against a basket of other currencies, after the Federal Reserve signaled it might raise interest rates sooner than expected, something that also shocked investors in both stocks and bonds, jostling those markets as well.
A firmer greenback makes oil more expensive in other currencies, which could damage demand for crude.
Other factors are affecting oil as well, including Iranians going to the presidential polls on Friday, with hardline judiciary chief Ebrahim Raisi among the frontrunners in the election.
“The outcome of tomorrow’s presidential elections in Iran is also likely to lend support to the oil price… Any rapid return of Iranian oil exports is questionable,” Commerzbank said in a note.
There has been some controversy with the election, as the U.S. has sanctioned Raisi for alleged involvement in executions of political prisoners. His election would make it more challenging for the United States and Iran to reach compliance with Iran’s uranium enrichment, something that would permit U.S. sanctions on Iran’s oil exports to be lifted.
Analysts have said Iran could increase oil supplies by 1 million to 2 million barrels per day (bpd) if sanctions are lifted.
President Biden and Putin’s recent Geneva meeting could also have an effect on crude prices as well.
The leaders of the United States and Russia supposedly did not discuss oil prices or the OPEC+ deal at their summit in Geneva on Wednesday, Vladimir Putin’s Press Secretary Dmitry Peskov said on Thursday.
Putin and U.S. President Joe Biden did not discuss Venezuela, the OPEC member under U.S. sanctions exempted from the OPEC+ alliance’s cuts, either, Peskov told Russian reporters in Moscow on Thursday, as carried by the TASS news agency.
Iran was on the table for discussion however, as well as the continuing talks regarding the U.S.-Iran nuclear deal, which could result in sanctions.
“There is certain progress,” Peskov told reporters, adding that Moscow hopes that “we will manage to get the situation out of its current state.”
President Biden on Wednesday also asked Putin about his feelings on someone initiating a ransomware attack on Russian oil pipelines, likely alluding to the Colonial Pipeline attack in the U.S earlier this year.
The Colonial Pipeline attack caused a major spike in oil, as investors panicked over the potential damage.
“It’s more likely that fuel shortages will be a result of panic buying from consumers watching the headlines unfold, as opposed to shortages directly caused by the attack,” Marty Edwards, former director of industrial control systems for CISA, and vice president of operational technology security for Tenable, told Recode after the attack. “This is something we saw with Covid and grocery stores selling out of household items. Regardless, it shows the impact cybersecurity has on our everyday lives.”
Despite saying at the top of his press conference that he didn’t feel there was “any kind of hostility” between himself and Biden, Putin engaged in a familiar anti-US digression to avert criticism of the Russian Federation.
For investors looking for crude ETFs to play the run-up in oil, which has been fairly steady since November, the United States 12 Month Oil Fund (USL) and the iPath Pure Beta Crude Oil ETN (OIL) are two funds to consider.
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