By Adedapo Adesanya
The oil market fell about 4 per cent on Thursday as a bigger-than-expected Bank of England rate hike prompted worries about the global economy and fuel demand.
This suppressed the Brent futures by $2.98 or 3.9 per cent to $74.14 a barrel, while the US West Texas Intermediate (WTI) crude futures were down by $3.02 or 4.2 per cent, at $69.51 per barrel.
The benchmarks erased gains from the previous session, during which US corn and soybean prices raced to multi-month highs, raising expectations that crop shortfalls could lower biofuel blending and increase oil demand.
This raised expectations that crop shortfalls could lower biofuel blending and increase oil demand.
The Bank of England (BoE) raised interest rates by half a percentage point on Thursday after it said there had been significant news suggesting inflation in the United Kingdom would take longer to fall.
The BoE’s Monetary Policy Committee (MPC) voted 7-2 to raise its main interest rate to 5 per cent from 4.5 per cent, its highest since 2008 and its largest rate increase since February, following stickier inflation and wage growth since its policymakers met last in May.
Higher interest rates could slow economic growth and reduce oil demand.
On its part, the US Federal Reserve Chair Jerome Powell said two more rate hikes of 25 basis points each by the end of the year was a pretty good guess.
He told the US Congress in his half-year testimony on the economy to lawmakers that further rate hikes would be necessary to fight inflation.
These developments outweighed the positives that came as the US Energy Information Administration (EIA) reported an inventory decline of 3.8 million barrels for the week to June 16.
At 463.3 million barrels, the EIA said, inventories were around the five-year average for this time of the year.
Last week’s inventory level changed compared with a substantial build of almost 8 million barrels estimated for the previous week.
This is after the American Petroleum Institute (API) estimated on Wednesday a decline of 1.246 million barrels in crude oil inventories in the United States, against expectations of a smaller 433,000-barrel draw.
Investors are now awaiting Chinese factory activity data due next week, which could indicate the strength of China’s economy.
Modupe Gbadeyanka