Oil Tumbles as US Hikes Interest Rate
By Adedapo Adesanya
Oil depreciated on Wednesday after the United States Federal Reserve delivered another hefty rate hike to quell inflation, but indications show this may also reduce economic activity.
Brent futures fell 54 cents or 0.6 per cent to $90.08 a barrel, while the US West Texas Intermediate (WTI) crude fell 71 cents or 0.9 per cent to $83.23 per barrel.
The US Fed raised its target interest rate by three-quarters of a percentage point to a range of 3.00-3.25 per cent and signalled more big increases ahead, causing crude oil to tumble.
In its quest to bring down inflation running near its highest levels since the early 1980s, the US central bank took its federal funds rate up to the range, which is the highest it has been since early 2008, following the third consecutive 0.75 percentage point move.
The increases started in March and from the point of near-zero mark the most aggressive US Fed tightening since it started using the overnight fund rate as its principal policy tool in 1990. The only comparison was in 1994 when the Fed hiked a total of 2.25 percentage points; it would begin cutting rates by July of the following year.
Along with the massive rate increases, Fed officials signalled to continue to hike until the funds level hits a “terminal rate,” or end point of 4.6 per cent in 2023. That implies a quarter-point rate hike next year but no decreases.
This was worsened as the US Energy Information Administration (EIA) reported a crude oil inventory build of 1.1 million barrels for the week to September 16.
For the previous week, the EIA had estimated an inventory build of a considerable 8.8 million barrels. A day before this week’s EIA report, the American Petroleum Institute (API) estimated a crude oil stock build of just over 1 million barrels, with builds estimated in fuels.
The EIA reported a build of 1.6 million barrels for gasoline (petrol) inventories, estimating production at some 9.5 million barrels per day last week. This is compared with an inventory draw of 1.8 million barrels for the previous week and a production rate of 9.5 million barrels per day.
The market will also be looking at the new turn in the Russian aggression in Ukraine as President Vladimir Putin reportedly rallied 300,000 reservists to fight in Ukraine and backed a plan to annex parts of the country, hinting he was prepared to use nuclear weapons.
US President Joe Biden has accused Russia of making “reckless” and “irresponsible” threats to use nuclear weapons.