Oil Prices Fall Amid Interest Rate Hike Concerns
Oil prices have fallen for a second consecutive session, with Brent futures down 0.4% to $73.76 a barrel and US West Texas Intermediate crude futures down 0.6% to $69.09. The decline follows an interest rate hike in Britain and warnings about rate rises in the US, which have raised concerns over demand. The Bank of England raised interest rates by half a percentage point, sparking fears of an economic slowdown that could dent fuel demand. The market is now waiting for the release of Purchasing Managers Indexes from around the world on Friday for a view on manufacturing activity and demand trends.
Recession Fears Mount
Tina Teng, an analyst at CMC Markets, has warned that “recession fears mount again following central banks’ rate hikes and a hawkish Fed”. She added that a stronger dollar was also weighing on prices. The value of the dollar has risen 0.3% this week, which can weigh on oil demand by making the fuel more expensive for holders of other currencies. Both crude benchmarks had dropped about $3 in the previous session.
US Crude Stocks Post Surprise Drawdown
Crude stocks in the US posted a surprise drawdown in the last week, helped by strong export demand and low imports, according to the Energy Information Administration. However, gasoline and distillate inventories rose. Federal Reserve Chair Jerome Powell said the central bank would move interest rates at a “careful pace” from here as policymakers edge toward ending their historic round of monetary policy tightening.
Interest Rate Hikes Could Reduce Oil Demand
Higher interest rates increase borrowing costs for businesses and consumers, which could slow economic growth and reduce oil demand. Fears of hikes by major central banks have clouded the fuel demand outlook for the rest of the year. “Energy traders are worried that the Fed and friends might cripple economic growth in the second half of the year,” said Edward Moya, an analyst at OANDA.
Conclusion
Oil prices have fallen for a second straight session amid concerns over interest rate hikes in the UK and US. The Bank of England raised interest rates by half a percentage point, sparking fears of an economic slowdown that could dent fuel demand. Higher interest rates increase borrowing costs for businesses and consumers, which could slow economic growth and reduce oil demand. The market is now waiting for the release of Purchasing Managers Indexes from around the world on Friday for a view on manufacturing activity and demand trends.