Oil Prices Continue To Fall On Concerns About Demand. Fed Rate Hike Looming

Oil Prices Continue To Fall On Concerns About Demand. Fed Rate Hike Looming

September 22, 2022: Crude oil prices extended their decline on Wednesday as traders feared the widely anticipated Federal Reserve rate hike would increase pressure on oil demand.

Brent crude futures trading in London fell 0.6% to $90.37 a barrel, while US West Texas Intermediate crude futures fell 0.2% to 83. Both contracts fell by more than one channel on Tuesday.

The Fed is expected to raise rates by at least 75 basis points (bps) at the end of its two-day meeting on Wednesday.

The move marks the bank’s fifth interest rate hike of the year to curb runaway inflation in the country. However, the move is expected to tighten US financial conditions, putting pressure on economic activity and ultimately oil demand.

Already this year, oil demand in the country has suffered the double blow of high inflation and soaring interest rates. The dollar rose in hopes of a rate hike.

A stronger dollar also weighs on overseas demand for oil by making oil imports more expensive. In particular, India and Indonesia, which are big importers, are putting pressure on their oil consumption due to the strong dollar.

American Petroleum Institute (API) data released on Tuesday also showed weak demand for crude oil among US consumers.

API showed US gasoline inventories increased by 3.2 million barrels last week, though total weekly inventories fell short of expectations.

The figures, along with data earlier this week showing a slowdown in U.S. road traffic, point to sluggish demand for gasoline in the country even as gasoline prices have fallen from record highs.

API data will serve as a predecessor to official Energy Information Administration data due later today. EIA data is expected to show gasoline inventories fell by 400,000 barrels last week.

Crude oil prices have fallen sharply from the highs seen at the start of the Russo-Ukrainian war amid growing concerns over a slowdown in demand this year.

The steadily declining U.S. strategic oil reserves have also weighed on oil supplies. increase, putting pressure on prices.

However, harsh European winters are likely to boost demand for crude oil this year, especially for heating.

Tightening supply should also have a positive impact on prices as the US considers further sanctions on Russian oil.

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