Crude oil futures track financial markets lower; snap three-day gains

0216 GMT: Crude oil futures were lower in mid-morning trade in Asia Jan. 6, tracking the overall bearish tone in financial markets, after the US Federal Reserve caught investors off-guard with plans to tighten monetary policy faster than expected.

At 10:16 am Singapore time (0216 GMT), the ICE March Brent futures contract was down 87 cents/b (1.08%) from the previous close at $79.93/b, snapping three days of gains that took it momentarily above the key $80/b handle.

The NYMEX February light sweet crude contract fell 74 cents/b (0.95%) at $77.11/b.

"Markets were rocked by a hawkish FOMC minutes overnight, after the Fed indicated they may raise their key rate earlier than previously anticipated. Asian markets may face a tumultuous trading session on the back of hawkish FOMC minutes," said OCBC Treasury Research analysts in a Jan. 6 note.

Minutes of a December Federal Open Market Committee meeting released Jan. 5 showed policy members leaning toward raising interest rates faster than expected, while also shrinking the Fed's massive balance sheet at a faster pace than in the past.

"The combined effect of a shrinking balance sheet and aggressive rate hikes may have driven worries on some capping of economic momentum ahead, largely reflected in the flattening of the yield curve overnight," IG market strategist Yeap Jun Rong said in a note dated Jan. 6.

The minutes sent key US equity indices tumbling on the day, though oil had pared losses earlier in the day to settle higher by around 1%.

Nonetheless, oil prices were ripe for some profit-taking after a three-day bull run that added close to 4% in value to both crude oil benchmarks.

Sentiment in oil markets were also dented by data from the US Energy Information Administration showing large builds in refined product inventories.

US gasoline inventories surged 10.13 million barrels to 232.79 million barrels in the week ended Dec. 31 as implied demand fell to a 10-month-low of 8.17 million b/d, the EIA said, in a sign of the impact the coronavirus surge was having on oil demand.

Nationwide distillate stocks jumped 4.42 million barrels to 126.85 million barrels, the EIA said, while crude oil stocks fell by 2.14 million barrels to 417.85 million barrels, a 15-week low.

COVID-19 caseloads in the US have continued to surge due to the highly infectious omicron strain of the coronavirus.

Daily infections reached a staggering 956,893 cases on Jan. 3, the US Centers for Disease Control and Prevention data showed. Deaths were also beginning to climb while hospitalizations were reaching record highs in some US states due to the sheer scale of infected cases, CDC data and media reports showed.