By Adedapo Adesanya
The oil market slid more than one per cent to a two-week low on Thursday on increased worries the US Federal Reserve may go too far with its interest rate hikes to control inflation.
Brent futures fell $1.07 or 1.3 per cent to settle at $81.59 a barrel, as the US West Texas Intermediate (WTI) futures dropped 94 cents or 1.2 per cent to settle at $75.72 per barrel.
In a short but impactful speech, the US central bank chief, Mr Jerome Powell, set out a new paradigm for how the Fed views its policy path, one that apparently will see even higher interest rates for a longer period of time than previously thought.
The aftermath has forced the oil market, which long had been looking for the Fed to blink in its inflation fight, to recalibrate its views to coincide more with policymakers who have been warning about a higher-for-longer approach to interest rates.
The markets had been looking for the Fed to raise its benchmark interest rate by 0.25 percentage points at its meeting later this month, then perhaps two more moves before stopping, with the endpoint around 5.25 per cent.
This changed after Mr Powell’s speech, during which he cautioned that if inflation data remains strong, he expects rates to go “higher than previously anticipated” and possibly at a faster pace than a quarter point at a time.
This development put both benchmarks down for a third day in a row, with WTI down about 6 per cent and Brent down about 5 per cent during that time.
Pressure also came as the number of Americans filing new claims for unemployment benefits increased by the most in five months last week.
Prices earlier on Thursday gained support after an oil major, TotalEnergies was unable to make deliveries from its French refineries because of continued strike action a day after data showed an unexpected decline in US crude inventories last week.
Support also came from a pause in the Dollar’s rally. A weaker dollar makes oil cheaper for buyers holding other currencies and tends to support risk appetite among investors.
Analysts warned that the halt in deliveries from French refineries and slight weakness in the Dollar might attract some short-covering.
Despite concerns over interest rate hikes impacting demand for oil, there has been supported from expectations of rising Chinese demand.
While China’s crude oil imports in the first two months of 2023 fell 1.3 per cent year on year, analysts pointed to accelerating imports in February as a sign that fuel demand was rebounding after the Asian giant scrapped COVID-19 controls.
Dipo Olowookere