Crude oil prices have seen a significant drop in the Asian market on Thursday, following the Federal Reserve's warning of a possible increase in U.S. interest rates. This news has led investors to secure their recent gains, despite an ongoing expectation of a limited supply that could potentially boost crude oil's future prospects.
Both West Texas Intermediate (WTI) and Brent oil futures experienced considerable declines. WTI fell below the $90 per barrel mark, while Brent also saw a sharp drop from its 10-month peak earlier this week, as markets underwent a wave of profit realization.
On Wednesday, the Federal Reserve kept rates steady but warned that persistent inflation could necessitate at least one more rate increase this year. The bank also hinted at fewer rate cuts next year. This news strengthened the dollar, resulting in losses across various financial markets. By 20:17 ET (00:17 GMT), Brent oil futures had dropped 0.4% to $93.08 a barrel, while WTI futures fell 0.6% to $89.17 a barrel, marking the third consecutive session of losses after reaching 10-month highs.
An interest rate rise is feared to negatively affect economic activity, which could potentially impact crude demand adversely. Alongside the Federal Reserve, decisions on interest rates from the Bank of England and the Bank of Japan are also expected this week.
Despite these developments, factors such as potential supply limitations that pushed crude to its highest levels in 2023 remain relevant. Some analysts suggest that these conditions could drive oil prices further up.
Data released on Wednesday revealed that U.S. crude inventories decreased slightly less than expected for the week ending September 15. However, gasoline and distillates saw an unanticipated drawdown as refiners reduced production with the end of summer.
This overall inventory reduction was also influenced by robust oil exports, suggesting that global crude demand remains resilient. The inventory data indicates that U.S. oil markets continue to be tight, which supports predictions that global supplies will become increasingly constrained in the upcoming months.
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