Oil Prices Down by 1% as US Fed Pauses Interest Rate Hike

By Adedapo Adesanya

Oil prices fell by 1 per cent on Wednesday after the US Federal Reserve left interest rates unchanged, as widely expected.

Brent futures fell 81 cents or 0.9 per cent to settle at $93.53 a barrel, while the US West Texas Intermediate crude (WTI) fell by 92 cents or 1.0 per cent to trade at $90.28 per barrel.

Wednesday’s decision means the benchmark short-term interest rate will remain at 5.25 per cent to 5.5 per cent, a 22-year high.

This is only the second time since March 2022 that the US central bank meetings have concluded without another rate hike.

The decision to hold interest rates steady for September indicates that next year may see fewer rate cuts than analysts had earlier anticipated.

However, the US Federal Reserve has signalled there may be another rate hike later this year as inflation remains elevated despite a fairly strong economy.

Interest rate hikes to tame inflation can slow economic growth and reduce oil demand.

The market largely ignored the US Energy Information Administration (EIA) weekly report, which said crude inventories fell by 2.1 million barrels last week.

On Tuesday, the American Petroleum Institute (API) reported a large 5.25-million-barrel draw in US crude inventories, offsetting last week’s 1.174-million-barrel build.

In the UK, data showed a surprise drop in inflation in August, as the consumer price index fell by 0.1 percentage point to 6.7 per cent, its lowest since February 2022.

Market analysts were concerned that soaring oil prices could reverse consumer price inflation that has been declining since February this year, with the Bank of English set to decide on interest rates on Thursday.

Expectations remain that Brent will trade in a range of $90-100 per barrel over the coming months, with a year-end target of $95 per barrel.

Recall that the market is strong following moves by members of the Organisation of the Petroleum Exporting Countries and its allies, OPEC+, particularly Saudi Arabia and Russia, extending combined supply cuts of 1.3 million barrels per day to the end of the year.