By Adedapo Adesanya
Brent crude dropped $1.38 or 1.5 per cent on Tuesday to $90.62 per barrel as the United States Dollar stayed strong and investors anticipated more central bank interest-rate hikes.
Also, the West Texas Intermediate crude (WTI) depreciated by $1.28 during the session to $84.45 per barrel as the market awaits the Federal Reserve to raise the interest rate by another 75 basis points on Wednesday to curb inflation.
Those expectations weigh on equities, often moving in tandem with oil prices. Other central banks, including the Bank of England, meet this week as well. Yesterday, the Swedish central bank raised its rates by one per cent.
The series of interest rate hikes have supported the US Dollar, which continues to trade near a two-decade high. The strong US Dollar has been a major bearish factor for crude prices, and since it is traded in the American currency, it makes it more expensive for holders of other currencies.
The prospect of further rate hikes has had a resounding negative impact on prices as traders continue to close out long positions.
And it’s not just the US Federal Reserve hiking interest rates as 90 central banks have raised interest rates this year, and many of them have opted to raise interest rates by 75 basis points at once.
The market is facing downward concerns driven by the aggressive monetary tightening in the US and Europe, which according to analysts, is increasing the likelihood of a recession and might weigh on oil demand prospects.
China left its benchmark lending rates unchanged on Tuesday as the world’s second-biggest oil user tries to balance sluggish economic growth against its weakening yuan currency.
Data also indicated weaker demand in the world’s largest oil consumer as US motorists drove less in July than the previous month, a second straight monthly decline, due to high fuel prices.
A positive for the market reared its head from China, where authorities lifted the lockdown in the 21 million-populated city of Chengdu, allowing people to leave their homes and resume commercial activities.
A document from the Organisation 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 – about 3.5 per cent of global oil demand.
Dipo Olowookere