Crude Oil Slides on US Interest Rates Hike Signal

By Adedapo Adesanya

Crude oil declined on Tuesday after rising in an earlier session as the possibility of interest rates hike in the United States outweighed concerns about supply.

This slowed the Brent crude by 36 cents or 0.41 per cent to $87.84 per barrel and crushed the West Texas Intermediate (WTI) by 52 cents or 0.61 per cent to $85.08 per barrel.

The US Federal Reserve is expected to signal at its meeting this week of the possibility of raising the rates in March and will consider other policy tightening, reversing the easy policies it put in place to fight the pandemic.

The Fed began its two-day meeting Tuesday, and on Wednesday, the country’s central bank is expected to issue a new statement that shows it is resolved to fight inflation.

The oil market, just like other asset markets, reacted as expectations show that the world’s largest economy might push up the fed funds rate from zero as soon as March.

This put the concerns about supply disruptions in the back seat for now although the escalation of Ukraine-Russia tensions, threats to infrastructure in the United Arab Emirates and struggles by the Organisation of the Petroleum Exporting Countries and allies (OPEC+) to hit its targeted monthly output increase remain present.

Market analysts noted that geopolitical risks sent crude prices higher as a tight oil market that is already battling low inventories seems vulnerable to shortages in the coming months.

The United States is in talks with major energy-producing countries and companies around the world over a potential diversion of supplies to Europe if Russia invades Ukraine.

Meanwhile, Russia said it was watching with great concern after the United States put 8,500 troops on alert to be ready to deploy to Europe in case of an escalation.

In the same vein, traders continue to monitor tensions in the Middle East as Yemen’s Iran-aligned Houthi movement launched a missile attack on Monday on a United Arab Emirates base that hosts the US military, which was intercepted by its defence systems.

Also fuelling supply concerns is the difficulty encountered by OPEC+ which is unable to hit its targeted monthly output increase of 400,000 barrels per day.

In Iran, talks to revive a 2015 nuclear deal with Western powers moved forward and if an understanding is reached, it could result in the lifting of sanctions on Iran and more barrels of Iranian oil for world markets.