By Adedapo Adesanya
Crude oil fell by 1 per cent on Wednesday after the US Federal Reserve projected more interest rate hikes this year, as government data showed an unexpected, large build in crude oil stocks in the United States.
As a result, $1.05 or 1.5 per cent was trimmed from Brent, as it settled at $73.20 a barrel, while the US West Texas Intermediate (WTI) received a haircut of $1.15, or 1.7 per cent to $68.27.
Both benchmarks had climbed more than 1 per cent earlier in the session. They rose more than 3 per cent the previous day on expectations of rising fuel demand after China’s central bank lowered a short-term lending rate.
The US Federal Reserve kept interest rates unchanged on Wednesday but signalled in new economic projections that borrowing costs will likely rise by another half of a percentage point by the end of this year as the U.S. central bank reacted to a stronger-than-expected economy and a slower decline in inflation.
In an effort to balance risks to the economy with a still unresolved fight to control inflation, “holding the target (interest rate) range steady at this meeting allows the committee to assess additional information and its implications for monetary policy,” the rate-setting Federal Open Market Committee (FOMC) said in a unanimous policy statement issued at the end of its latest two-day meeting.
It was disclosed that further rate increases would “take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” it said.
Higher interest rates strengthen the US Dollar, making commodities denominated in the US currency, like oil, more expensive for holders of other currencies.
The Energy Information Administration (EIA) reported an estimated inventory build of 7.9 million barrels for the week to June 9.
This compared with a modest inventory draw of half a million barrels for the previous week and an estimated build of just over 1 million barrels for the week to June 9 as reported on Tuesday by the American Petroleum Institute (API).
Analyst expectations for the weekly change ranged from a draw of 2.5 million barrels to a build of 2 million barrels.
Meanwhile, the International Energy Agency (IEA) increased its oil demand growth forecast for this year by 200,000 barrels per day to 2.4 million barrels per day, lifting the projected total to 102.3 million barrels per day.
However, the agency expects economic headwinds to reduce growth to 860,000 barrels per day next year and increase the use of electric vehicles to help to reduce that to 400,000 barrels per day in 2028 for overall demand of 105.7 million barrels per day.
The IEA’s 2023 oil demand growth figure is slightly above that of the Organisation of the Petroleum Exporting Countries (OPEC).
JPMorgan downgraded its forecast for this year’s average Brent crude price by $9 to $81 a barrel.
