Ana sayfa » Oil slumps as the dollar strengthened by the Fed’s rate hike, fueling recession fears

Oil slumps as the dollar strengthened by the Fed’s rate hike, fueling recession fears

Limited supply edges oil price decline

by BUNKERIST

The Federal Reserve increased rates by 0.75 percent. Oil slid on Thursday as a US rate hike boosted the dollar and fueled fears of a global recession, but losses were limited by concerns over tight supply.

Brent crude fell 37 cents, or 0.4%, to $95.79 a barrel at 0426 GMT, while West Texas Intermediate (WTI) crude futures fell 60 cents, or 0.7%, to $89.40 a barrel.

Both gauges rose more than $1 on Wednesday, aided by a drop in US oil inventories, despite the Fed raising interest rates by 75 basis points and Chairman Jerome Powell saying it’s too early to consider stopping any rate hikes.

The stronger dollar has dragged oil down and some market participants likely made satisfactory profits after recent gains.

A strong dollar reduces oil demand by making fuel more expensive for buyers using other currencies.

A dark global economic outlook could continue to weigh on oil futures markets in case the Fed confirms a higher peak in rates.

The European Union’s embargo on Russian oil due to its invasion of Ukraine will begin on December 5, followed by an end to oil product imports in February.

It is likely that the Organization of the Petroleum Exporting Countries (OPEC) will keep supply tight in the coming months and will struggle to meet its predetermined production quotas.

OPEC production fell in October for the first time since June. OPEC and its allies, including Russia, have also agreed to cut their targeted output by 2 million barrels per day (bpd) from November.

The market also expects demand to be increased in China with hopes that Beijing will loosen its zero-COVID policies. Chinese policymakers said on Wednesday that growth is still a priority and they will pursue reforms.

Any sign of reopening in China following the COVID-19 restrictions will undoubtedly be a pivoting factor.