By Adedapo Adesanya
The oil market went south for the first time this week on Thursday as traders worried about the fuel demand outlook due to a stronger dollar and further interest rate hikes by global central banks.
Brent futures fell by $1.49 or 1.8 per cent to settle at $81.21 a barrel, while the United States West Texas Intermediate (WTI) crude fell by $1.17 or 1.5 per cent to trade at $76.11 per barrel.
The market acted as US Federal Reserve Chair Jerome Powell said on Wednesday the US central bank would raise interest rates further next year, even as the economy slips toward a possible recession.
He said the Federal Reserve would deliver more interest rate hikes next year even as the world’s largest consumer slips towards a possible recession, arguing that a higher cost would be paid if the US central bank does not get a firmer grip on inflation.
The Fed’s policy-setting committee raised its benchmark overnight interest rate by half a percentage point and projected it would continue rising to above 5% in 2023, a level not seen since a steep economic downturn in 2007.
On Thursday, the Bank of England (BoE) and the European Central Bank (ECB) raised interest rates to fight inflation.
The BoE’s Monetary Policy Committee voted to raise Bank Rate to 3.5 per cent, its highest since 2008, from 3.0 per cent, as it eyed the risk of persistent domestic inflation pressure from prices and wages, even with a looming recession and hopes that inflation might have peaked when it hit a 41-year high in October.
On its part, the ECB eased the pace of its interest rate hikes on Thursday but stressed significant tightening remained ahead and laid out plans to drain cash from the financial system as part of a dogged fight against runaway inflation.
Also, a stronger US Dollar impacted the direction of the market. A strong greenback makes oil more expensive for those using other currencies.
In China, the world’s second-biggest economy, lost more steam in November as factory output slowed and retail sales extended declines, the worst readings in six months, affected by surging COVID-19 cases and widespread virus curbs.
Also pressuring oil prices, Canada’s TC Energy Corp said it was resuming operations in a section of its Keystone pipeline, a week after a leak of more than 14,000 barrels of oil in Kansas triggered a shutdown.
