The oil market fell for the first time this week on Thursday as traders worried about the outlook for fuel demand due to a stronger dollar and further interest rate hikes from global central banks.
Brent futures fell $1.49, or 1.8 percent, to settle at $81.21 a barrel, while U.S. West Texas Intermediate (WTI) crude fell $1.17, or 1.5 percent, to settle at $81.21 a barrel. trading at $76.11 a barrel.
The market acted as US Federal Reserve Chairman Jerome Powell said on Wednesday that the US central bank would raise interest rates further next year, even as the economy slides into a possible recession.
He said the Federal Reserve would raise interest rates further next year even as the world’s biggest consumer slides into a potential recession, arguing that a higher cost would be paid if the US central bank does not more tightly control inflation.
The Fed’s policy committee raised its benchmark overnight interest rate by half a percentage point and projected it would continue to rise above 5% in 2023, a level not seen since the sharp economic downturn of 2007.
On Thursday, the Bank of England (BoE) and the European Central Bank (ECB) raised interest rates to combat inflation.
The BoE’s Monetary Policy Committee voted to raise the bank rate to 3.5 percent, its highest level since 2008, from 3.0 percent, as it noted the risk of persistent domestic inflationary pressure from prices and wages. Even with a looming recession and expected inflation may have peaked when it hit a 41-year high in October.
For its part, the ECB eased the pace of its interest rate hikes on Thursday but stressed significant tightening still lay ahead and laid out plans to drain cash from the financial system as part of a dogged fight against runaway inflation.
Additionally, a stronger US dollar affected the direction of the market. A strong dollar makes oil more expensive for those using other currencies.
In China, the world’s second-largest economy, lost further steam in November as factory output slowed and retail sales continued to fall, the worst readings in six months, weighed down by rising COVID-19 cases. 19 and widespread virus restrictions.
Also putting pressure on oil prices, Canada’s TC Energy Corp said it would resume operations on a section of its Keystone pipeline, a week after a leak of more than 14,000 barrels of oil in Kansas caused a shutdown.