Oil prices dwindle in anticipation of potential Fed rate increase

Oil prices have reportedly reduced on Tuesday i.e., 20th September, which followed a dip in other risk assets, as the dollar remained strong, and investors predicted further rate hikes from central banks aimed at crushing inflation.

The U.S. Federal Reserve is anticipated to increase interest rates by an additional 75 basis points in order to curb inflationary pressures. These predictions are straining the stocks, which frequently move in sync with oil prices. Furthermore, the Bank of England and other central banks are scheduled for a meeting this week.

Oil has become more expensive for holders of other currencies as a result of higher rates supporting the dollar, which has maintained a two-decade high against peers.

According to experts, the oil market is trapped between fears of a decline and expectations of an increase. Moreover, worries are being raised by rapid monetary tightening in the U.S. and Europe, which might affect estimates for oil demand and increase the likelihood of a recession.

On the day of its expiration, U.S. West Texas Intermediate (WTI) crude for October delivery concluded at USD 84.45, down USD 1.28, Brent crude futures settled down USD 1.38, or 1.5%, to USD 90.62, while the active November contract decreased by USD 1.42 to USD 83.94 per barrel.

However, both WTI and Brent are experiencing their worst quarterly percentage reductions since the beginning of the COVID-19 outbreak. It is worth noting that in March, Brent reached its highest since 2008, at almost USD 139 per barrel.

In addition, the oil markets have also been impacted by sluggish consumption in China and the United States. As demand has dipped substantially, retail gas prices have fallen from their peak.

Interestingly, it is projected that U.S. crude oil stocks increased by around 2 million barrels last week. Meanwhile, the report from The Organization of the Petroleum Exporting Countries (OPEC) and its allies led by Russia depicts that the group's output in August fell 3.58 million barrels per day short of its target, about 3.5% of the world's oil consumption.

Source Credit:

https://www.reuters.com/markets/europe/oil-prices-steady-prospect-fed-hikes-may-curb-fuel-demand-2022-09-20/