Oil Price Falls On Expected Interest Rates Hikes!

Oil prices slid about one percent on Thursday. It was due to an increase in U.S. interest rates, which pushed up the dollar and heightened fears of the global recession that would crimp fuel demand. Losses in the trade were limited by concern over tight supply. Brent Crude fell by 90 cents or 0.9 percent to dollar 95.26 a barrel by 11:37 a.m. EDT (1537 GMT). At the same time, U.S. West Texas Immediate (WTI) crude fell 1.26 dollars or 1.4 percent to dollar 88.74.

Oil Prices Are Falling, And Investors Anticipate A Large Fed Rate Hike

Both of these benchmarks gained more than one dollar on Wednesday. It was aided by another drop in the U.S. oil inventories, even as the U.S. Federal Reserve increased interest rates by 75 basis points. Chair Jerome Powell said it was too early to consider pausing rate increases. This sent the dollar to a higher value on Thursday.

Jerome Powell indicates that U.S. rates are likely to increase above the current investor expectations. A dollar at a higher value will reduce the demand for oil by making it difficult for buyers to use other currencies. They will have to pay more for the dollar, making the transaction expensive.

PVM Oil analyst Tamas Varga said that rising anxiety about stalling growth will inevitably impact global oil demand, and another downward revision in the next set of forecasts is not a far-fetched idea. The oil market is expected to tighten in the coming months. Managing partner of SPI Asset Management, said it was surprising that oil had proved so resilient after the move by the Fed. But he said that fundamentals have put control over the prices.

The European Union will start its embargo on Russian oil on December 5, over its invasion of Ukraine. In February there will be a halt on oil product imports.  Lower output from the Organization of the Petroleum Exporting Countries (OPEC) also lent price support, with a Reuters research finding that the producer group’s output fell in October for the first time since June. The study found that OPEC produced 29.71 million barrels per day (BPD) last month, which was down 20,000 BPD from September, and it was the highest output since April 2020. OPEC produced 1.36 million BPD below targets for October. OPEC and its allies including Russia, which is collectively known as OPEC+, also decided to cut targeted output by 2 million BPD from this month.

There will be higher demands from China if Beijing eases its covid policies. China faced a very high spike in Covid-19 cases in the past two and half months after the health authority stuck by its strict containment policy. This weakened investors’ hopes for an easing of the restrictions that are affecting the world’s number two economy. Above that, in the midst of a struggling economy, China’s natural gas demand may mark a two decades-low value. The demand this winter is all set to rise more than in previous years says state energy officials. Chinese policymakers said on Wednesday that growth was still a priority, and they would press on with reforms. 

The number of Americans filing new unemployment benefit claims unexpectedly fell last week. It points to the labor market being strong despite slowing domestic demand amid hefty interest rate hikes to tame inflation. The United States is not the only country to tighten the policy. The Bank of England raised interest rates, which were the highest from 1989. The bank also warned that it is going to face a long recession.