Oil Fluctuates After Fed Reserve Hikes Rates to Combat Inflation

Bloomberg · 22 Sep 2022 1K Views

(Bloomberg) -- Oil fluctuated near $83 a barrel after the US Federal Reserve raised interest rates and signaled more aggressive monetary tightening, stoking concerns about the outlook for energy demand.

West Texas Intermediate futures closed almost 2% lower Wednesday following the Fed hike, which offset Russia’s escalation of its flagging war in Ukraine. Chair Jerome Powell vowed officials would crush inflation after they boosted rates by 75 basis points for a third straight time.

The Fed decision will be followed by other central banks in Asia and Europe, which are also expected to raise borrowing costs, adding to bearish headwinds. Oil is on track for its first quarterly loss in more than two years on concerns over a slowdown, while thin liquidity has exacerbated price swings.

“While Putin’s escalation raises some clear uncertainty over Russian energy flows, a hawkish Fed and gloomier macro outlook continues to weigh on sentiment,” said Warren Patterson, head of commodities strategy at ING Groep NV. “However, the longer term outlook remains supportive.”

The Bloomberg Dollar Spot Index rallied to a record following the Fed decision, putting additional pressure on oil. A stronger currency makes commodities priced in the greenback less attractive to investors.

China’s Covid Zero strategy, which relies on lockdowns and mass testing to stamp out infections, is also clouding the outlook for demand. Goldman Sachs Group Inc. cut its 2023 economic growth forecast for the nation sharply, predicting Beijing will continue its stringent policy into next year.

“Demand was already being tempered by China’s intermittent lockdowns, while the macroeconomic outlook is deteriorating faster than expected in Europe and high prices are denting US demand,” Citibank analysts wrote in a note dated Sept. 21. Recession concerns are weighing on sentiment, they added.

The Energy Information Administration, meanwhile, reported US crude supplies rose by 1.1 million barrels last week, while inventories expanded at the key storage hub at Cushing, Oklahoma. A measure of diesel demand also tumbled.



Editor:Callie
Proofreading:AUREL
Reprinted from Bloomberg, the copyright all reserved by the original author.

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