Reflecting the gathering jitters about the impact of tighter US monetary policy, veteran investor Ray Dalio warned that reducing inflation would only come at great cost. Separately, former treasury secretary Steven Mnuchin said energy prices need to settle down for price gains to be brought under control.
Oil’s slide came together with losses in other commodities, as well as risk assets more broadly. Copper and iron ore both declined, as did equity gauges. An additional headwind for crude prices came from a rising dollar, which makes imports more costly for holders of other currencies.
Still, oil markets remain in backwardation, a bullish pattern that’s marked by near-term prices trading above longer-dated ones. Brent’s prompt spread – the difference between its two nearest contracts – was $US2.86 a barrel in backwardation, compared with $US2.73 a barrel at the start of this month.
“With commodity demand above supply, markets remain tight even as growth rates slow, as evidenced by the high level of prompt backwardation in key markets like oil,” Goldman Sachs Group said in a note. “Investors should remember that Fed-induced slowdowns are simply a short-term abatement of the symptom, inflation, and not a cure for the problem, underinvestment.”