The Business Times

Oil prices down, investors expect big Federal Reserve rate hike

Published Wed, Sep 21, 2022 · 06:18 AM

OIL prices dipped on Tuesday, following other risk assets lower, as the dollar stayed strong and investors anticipated more central bank interest-rate hikes designed to quell inflation.

The US Federal Reserve is likely to raise interest rates by another 75 basis points on Wednesday to rein in inflation.

Those expectations are weighing on equities, which often move in tandem with oil prices.

Other central banks, including the Bank of England, meet this week as well.

Higher rates have bolstered the dollar, which remained near a two-decade high against peers on Tuesday, making oil more expensive for holders of other currencies.

“The oil market is caught between downward concerns and upside hopes. The concerns are driven by the aggressive monetary tightening in the US and Europe, which is increasing the likelihood of a recession and might weigh on oil demand prospects,” said Giovanni Staunovo, commodity analyst at UBS.

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Brent crude futures settled down US$1.38, or 1.5 per cent, to US$90.62 a barrel, while US West Texas Intermediate crude for October delivery ended at US$84.45, down US$1.28, on the day of its expiration.

The more active November contract settled down US$1.42 to US$83.94 a barrel.

Both Brent and WTI are on track for their worst quarterly drops in percentage terms since the beginning of the Covid-19 pandemic.

Brent hit about US$139 a barrel in March for its highest since 2008.

“The dollar is key and the Fed is key; they’re going to kill demand for anything inflationary,” said Robert Yawger, director of energy futures at Mizuho in New York.

The oil markets have also been reacting to weak consumption out of the United States and China. Motorists in the United States drove less in July than the previous month, a second straight monthly decline, due to high petrol prices.

Retail petrol prices have retreated from their peak as demand has slipped. “We’re going to roll into turnaround season here, so it’s neither driving season or heating season for the next six to seven weeks,” Yawger said.

US crude oil stocks are estimated to have risen last week by about 2 million barrels, a Reuters poll showed.

A document from the Organization of the Petroleum Exporting Countries (Opec) and allies led by Russia showed the group fell short of its output target in August by 3.58 million barrels per day (bpd) – about 3.5 per cent of global oil demand. REUTERS

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