Oil Market Dips on Profit Taking, High Rates Worries
By Adedapo Adesanya
The oil market retreated on Thursday, as traders took profits after prices soared recently while the space worried that high interest rates may weigh on demand.
During the trading session, Brent futures fell by $1.17 or 1.2 per cent to settle at $95.38 a barrel and the US West Texas Intermediate crude (WTI) declined by $1.97 or 2.1 per cent to close at $91.71 per barrel.
The market had reached a 10-month high as some traders worried high oil prices would stoke inflation, encouraging the US Federal Reserve and other central banks to persist with rate hikes.
Analysts also warned that investors view high oil prices as a reason for the US central bank to persist with high rates for longer than originally planned in order to curb inflation.
Despite Thursday’s fall in prices, WTI and Brent are still trading up roughly $10 per barrel since the end of August, and analysts are expecting oil prices to hold on to market fears about further supply cuts by the Organisation of the Petroleum Exporting Countries (OPEC) as the world heads into winter.
There are still some suggestions that oil is still heading to $100 per barrel.
US officials are focused on the super core price measure after hiking the benchmark overnight interest rate by 525 basis points since March 2022 to the 5.25 per cent – 5.50 per cent range.
Meanwhile, the US economy maintained a fairly strong 2.1 per cent pace of growth in the second quarter and appears to have gathered momentum this quarter with a resilient labour market driving strong wage gains.
Growth estimates for the July-September quarter are currently as high as a 4.9 per cent rate. But the fourth quarter could see a sharp slowdown if there is a US government shutdown on October 1.
Supply tightness is expected from Russia after President Vladimir Putin ordered his government to ensure retail fuel prices stabilise after a jump caused by an increase in exports.
He ordered his government to make sure retail fuel prices stabilise and urged additional measures to balance the domestic market following the introduction of a ban on petroleum and diesel exports.
He told the cabinet it needed to act swiftly and that reviewing oil industry taxes was an option.
The government last Thursday introduced a temporary ban on exports of gasoline and diesel to all countries beyond four ex-Soviet states to try to stem an increase in domestic fuel prices.
Russia said its ban on fuel exports will remain in place until the domestic market stabilizes and noted it has not discussed with OPEC+ a possible supply increase to compensate for that fuel export ban.