By Adedapo Adesanya
The prices of crude oil were down on Tuesday as the market was seized by expectations that the United States Federal Reserve will bump up the interest rate more than expected.
Brent crude lost $1.18 or 0.97 per cent to trade at $121.09 per barrel while the US West Texas Intermediate (WTI) crude slid $2.00 or 1.65 per cent to sell at $118.93 per barrel.
The market is expecting the US central bank to hike rates by 50 basis points at its meeting on Wednesday but after a surprisingly strong consumer price index (CPI) data for May, market watchers now expect a rate hike of 75 basis points.
Last week, the US Labor Department data released on Friday for May showed consumer price inflation accelerating to 8.6 per cent and this opened the door for speculation of an even greater basis point hike, which is driving down oil prices.
Several media reports, following an initial report in the Wall Street Journal, also signalled the possibility of a higher hike, several high-profile analysts, including those at institutions like JP Morgan and Goldman Sachs joined in.
However, a decision will not be reached till later on Wednesday.
Oil prices were pressured by reports that US Senate Finance Committee plans to introduce legislation setting a 21 per cent surtax on oil company profits considered excessive.
The bill would apply a 21 per cent additional tax on excess profits of oil and gas companies with more than $1 billion in annual revenue.
This took away the spotlight from the tightening oil market following a drop in exports from Libya amid a political crisis that has hit output and ports.
This happens as the Organisation of the Petroleum Exporting Countries (OPEC) failed to lift its production as agreed for the month of May.
According to OPEC’s latest Monthly Oil Market Report released on Tuesday, oil demand could be foiled by Russia’s invasion of Ukraine.
Saudi Arabia and the UAE are the only members that have any room to increase production but the extra production from the two Middle East producers was offset by an even greater decline in production from Libya, Nigeria, and Iraq.
Other OPEC+ producers are struggling to meet production quotas and Russia faces bans on its oil over the war in Ukraine.
The American Petroleum Institute (API) reported a build this week for crude oil of 736,000 barrels, while analysts predicted a draw of 1.2 million barrels.
The small build comes as the US Department of Energy released 7.7 million barrels from the Strategic Petroleum Reserves in Week ending June 10.
The market will await the official data from the US Energy Information Administration on Wednesday for US crude and fuel inventory data which analysts forecast have fallen by 1.2 million barrels last week.
Dipo Olowookere