Crude Oil: Oil prices fell over 1% on Thursday, continuing their steep decline in recent days, after the U.S. Federal Reserve increased interest rates and investors worried about a weakening global economy that could dent energy demand. Brent crude futures, the global benchmark, fell 1.1% or 76 cents to $71.57 a barrel, while U.S. West Texas Intermediate (WTI) crude fell 1.5% or $1 to $67.60 a barrel.
WTI in early trading on Thursday fell to a session low of $63.64 a barrel, the lowest since December 2021. Both Brent and WTI have fallen over 10% since the start of this week. The market sentiment has been negatively impacted by multiple factors, including the rise in interest rates, concerns over the banking sector, and the ongoing fight against stubborn inflation.
On Wednesday, the Fed raised interest rates by a quarter of a percentage point. The move weighed on oil prices, as higher rates could slow economic growth and hit energy consumption. However, the Fed also signaled that it may cause further increases, giving officials time to assess the fallout from recent bank failures, wait for the resolution of a political standoff over the U.S. debt ceiling, and monitor inflation.
Banking sector concerns have been prevalent, after U.S. regulators on Monday seized the First Republic, the third major U.S. institution to fail in two months, with JPMorgan Chase & Co agreeing to take $173 billion of the bank’s loans, $30 billion of securities, and $92 billion of deposits. This development has led to concerns over the stability of the banking sector, with fears that other banks could follow suit.
Investors are also waiting for developments from the European Central Bank (ECB), which is set to raise interest rates for the seventh meeting in a row on Thursday as its long fight against stubborn inflation continues. The size of the move still remains open to debate. The ECB will announce its policy decision at 1215 GMT, and its president, Christine Lagarde, will hold a press conference at 1245 GMT.
The decline in oil prices is not only due to the rise in interest rates and banking sector concerns but also due to worries about a weakening global economy that could hurt energy demand. The COVID-19 pandemic continues to impact the global economy, with many countries facing new waves of infections and subsequent lockdowns. This has led to reduced demand for oil and a potential slow recovery.
Moreover, the ongoing geopolitical tensions between the United States and Russia have also had an impact on oil prices. The U.S. and its allies have imposed sanctions on Russia, leading to a decrease in Russian oil exports. This has reduced the supply of oil in the market, leading to higher prices. However, there are concerns that this could lead to a further escalation of tensions between the two countries, which could have serious implications for global energy security.
In addition, the ongoing talks between the United States and Iran over the revival of the nuclear deal have also had an impact on oil prices. If the deal is revived, it could lead to an increase in Iranian oil exports, which would further increase the supply of oil in the market, leading to lower prices. However, there are concerns that the talks could break down, leading to a further reduction in Iranian oil exports, which would lead to higher prices.
The decline in oil prices is not only due to the rise in interest rates and banking sector concerns but also due to worries about a weakening global economy that could hurt energy demand. Moreover, the ongoing geopolitical tensions between the United States and Russia, as well as the talks between the United States and Iran over the revival of the nuclear deal, are also having an impact on oil prices. The market sentiment remains uncertain, and