Oil prices tumbled for the week on Friday as traders worried that interest rate hikes could dampen demand, despite signs of tighter supplies as US crude inventories fell unexpectedly.
For the second consecutive day of losses, Brent crude was down 29 cents, or 0.4%, to close at $73.85 a barrel. West Texas Intermediate (WTI) crude was down 35 cents, or 0.5%, at $69.16.
On Thursday, Brent fell nearly $3 a barrel after the Bank of England raised interest rates half a point more than expected. Central banks in Norway and Switzerland also increased interest rates.
Benchmarks fell more than 3.5% during the week.
Furthermore, more US interest rate hikes also seem likely. San Francisco Federal Reserve Bank Governor Mary Daly said two rate hikes this year were a “very reasonable” forecast.
There appears to be an increasing ‘risk back off’ type of trade in crude oil, driven by interest rate increases in the EU and disappointing stimulus figures from China. Bank of England rate hike triggers fund liquidation and energy producers are moving towards a hedging mindset.
Higher interest rates increase borrowing costs for businesses and consumers, which can slow economic growth and reduce oil demand.
Risk aversion among investors also increased the value of the US dollar, which put pressure on oil prices by making the commodity more expensive for other currency holders.
U.S. business activity also fell to a three-month low in June as services growth slowed for the first time this year and manufacturing contraction deepened, survey data showed.
While Wall Street’s main indexes fell, gold prices are experiencing their biggest weekly drop since the beginning of February.
China’s promising economic recovery has been hampered by weaker-than-expected consumption, production, and real estate market data for several months in a row.
Recession and demand concerns outweighed the signs of supply-side contraction.
Baker Hughes said US energy firms have this week cut the number of oil rigs that have been operating for the eighth consecutive week. The number of US oil rigs, an indicator of future production, dropped 6 this week to 546, the lowest level since April 2022.
This week’s US inventory report showed crude inventories fell by a surprise 3.8 million barrels.
In addition, the 1 million bpd production cut announced by Saudi Arabia for July and an OPEC+ agreement to limit supply to 2024 will also tighten the market.
