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Oil Prices Fall Further on Demand Fears; Fed Rate Hike Looms

Commodities Sep 20, 2022 09:22PM ET
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By Ambar Warrick

Investing.com-- Oil prices extended losses on Wednesday as traders feared more pressure on crude demand from a widely anticipated interest rate hike by the Federal Reserve, while signs of a potential build in U.S. gasoline inventories also weighed.

London-traded Brent oil futures fell 0.6% to $90.37 a barrel, while U.S. crude West Texas Intermediate futures fell 0.2% to $83.73 by 20:37 ET (00:37 GMT). Both contracts fell more than 1% each on Tuesday.

The Fed is expected to raise interest rates by at least 75 basis points (bps) at the conclusion of a two-day meeting on Wednesday. The move will be the bank’s fifth hike this year, as it moves to temper runaway inflation in the country.

But the move will tighten monetary conditions in the U.S., which is expected to weigh on economic activity and in turn on oil demand. Crude demand in the country is already reeling from the double whammy of high inflation and a sharp rise in interest rates this year.

The dollar rose in anticipation of the hike. A stronger dollar also weighs on overseas crude demand by making oil imports more expensive. Major importers India and Indonesia in particular have faced pressure on their crude consumption from a stronger dollar.

Data from the American Petroleum Institute (API), released on Tuesday, also showed some weakness in crude demand among U.S. consumers. While overall weekly inventories grew less than expected, the API showed that U.S. gasoline inventories grew by 3.2 million barrels last week.

The reading, coupled with data earlier this week showing a slowdown in U.S. road travel, pointed to sluggish gasoline demand in the country, even as gas prices fell from record highs.

The API data serves as a precursor to official data from the Energy Information Administration, due later today. EIA data is expected to show gasoline inventories fell 0.4 million barrels last week.

Oil prices have fallen sharply from highs hit during the onset of the Russia-Ukraine war, amid growing concerns over slowing demand this year. A steady drawdown from the U.S. Strategic Petroleum Reserve has also increased crude supply, weighing on prices.

But a harsh European winter could push up crude demand this year, particularly for heating purposes. Tightening supply, as the U.S. considers more sanctions on Russian oil, is also expected to benefit prices.

Oil Prices Fall Further on Demand Fears; Fed Rate Hike Looms
 

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Comments (3)
ge Kret
ge Kret Sep 21, 2022 1:40AM ET
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Calm before the next fake media story that sends oil to $120 ppb. Just in time for Europes first big freeze over.
Srinath Koteshwar
Srinath Koteshwar Sep 20, 2022 10:50PM ET
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market cash inflow is not enough to uplift . going more down . treasury 2yr almost 4 ,its a market crash indicator ...
Kerry Ditto
Kerry Ditto Sep 20, 2022 10:12PM ET
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what if fed hikes only 50bp or expected 75bp tomorrow? massive rally or relief rally.
Stephen Fa
Stephen Fa Sep 20, 2022 10:12PM ET
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No way unless leftist Democrat political interference occurs with Fed for midterm elections, which I doubt Fed will participate in.
 
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