Oil Plunges Further as US Central Bank Raises Interest Rates

By Adedapo Adesanya

Oil fell by 4 per cent on Wednesday, extending steep losses from the previous sessions after the US Federal Reserve raised interest rates and as investors fretted about the economy.

Brent futures lost $2.99 or 4.0 per cent to trade at $72.33 a barrel, while the US West Texas Intermediate crude (WTI) depreciated by $3.06 or 4.3 per cent to close at $68.60 per barrel.

Both benchmarks fell close to 5 per cent on Tuesday, their biggest daily percentage decline since early January.

On Wednesday afternoon, the US Fed raised interest rates by a quarter of a percentage point, pressuring oil prices as traders worried that slower economic growth could hit energy demand.

The US central bank has now raised rates ten consecutive times since March 2022, pushing its benchmark overnight interest rate to the 5.00 per cent – 5.25 per cent range.

The move marked a new stage of the US central bank’s management of the recovery from the COVID-19 pandemic, with what may be its final rate hike of the current tightening cycle and heightened attention to risks facing the economy.

The US Fed also signalled it may pause further increases while it waits for the resolution of a political standoff over the US debt ceiling and monitor inflation.

The European Central Bank (ECB) is also expected to raise rates at its policy meeting on Thursday.

This development made the overlook positive data as the US Energy Information Administration (EIA) reported yet another weekly inventory draw on crude oil inventories.

The report came a day after the American Petroleum Institute (API) estimated inventories had shrunk by almost 4 million barrels in the week to April 28.

In China, data over the weekend showed April manufacturing activity fell unexpectedly in the world’s largest energy consumer and top buyer of crude oil.

The market is also watching out for developments in the US banking industry after regulators seized the First Republic, the third major US institution to fail in two months.

JPMorgan Chase & Co has agreed to take $173 billion of the bank’s loans, $30 billion of securities and $92 billion of deposits.