On Wednesday, after the U.S. Federal Reserve left interest rates constant as many had predicted but hardened its hawkish attitude with a further rate increase likely by the end of the year, oil prices dropped roughly 1% to a one-week low. While U.S. West Texas Intermediate crude (WTI) for October delivery slid 1%, to close at $90.28, Brent futures for November delivery dropped 81 cents, or 0.9%, to reach a settlement price of $93.53 per barrel. That was Brent’s lowest closing price since September 13.
On Wednesday, the WTI contract for October comes to an end. The following front-month, WTI crude futures for November, were down around 82 cents at $89.66. Brent was technically overbought for a 14th straight day despite the price fall, which would be the longest run since 2012. The benchmark overnight interest rate for the Fed is still expected to peak this year between 5.50% and 5.75%, about 0.25 percentage points above the present range.
The slowing down of economic growth and the lowering of oil consumption are both effects of raising interest rates to control inflation. The likelihood of a recession will increase as a result of a combination of future interest rate increases, a strong currency, and rising oil prices, according to Ritterbusch and Associates, an energy advising firm. While everything was going on, the energy markets showed no reaction to U.S. energy data showing that crude stocks decreased last week as predicted.
According to a weekly report from the U.S. Energy Information Administration (EIA), the high oil exports that led to the drawdown in crude stocks were offset by a decline in gasoline and diesel stockpiles due to refiners starting their annual autumn maintenance. In contrast to the 2.2 million barrels reduction that analysts predicted in a Reuters poll, crude inventories decreased by 2.1 million barrels last week. The gasoline crack spread, a metric of refining profit margins, dropped to its lowest level since December 2022 as U.S. gasoline futures fell to their lowest level in two weeks.
The consumer price index in Britain unexpectedly declined in August by 0.1 percentage points to 6.7%, the lowest level since February 2022, according to statistics. In light of the decline, Goldman Sachs predicted that the Bank of England will hold interest rates steady on Thursday.
With China’s demand for steel and heavy oil declining, exports to Japan declined in August for the second consecutive month, fuelling concerns about a possible slump in the face of rising international interest rates.
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