Oil prices continued to decline on Thursday after the U.S. Federal Reserve adopted a more pessimistic stance than anticipated, heightening concerns that rising interest rates and inflation may have an adverse effect on crude demand in the months to come. Following the Fed’s anticipated 75 basis point interest rate increase on Wednesday, crude prices fell in choppy trading. However, the possibility of tighter monetary policy alarmed the markets as Fed Chair Jerome Powell said that more aggressive steps were required to combat inflation.
Powell stated that in order to combat inflation, the central bank is now prepared to take a chance on the state of the labor market and the economy. In addition to the Bank of England, other significant central banks are anticipated to raise interest rates to combat excessive inflation. U.S. West Texas Intermediate WTI crude futures declined 0.3% to $82.72 per barrel on Thursday, while London-traded Brent oil futures fell 0.4% to $89.56 per barrel.
This year’s global demand for crude oil has also been hampered by the dollar’s strength, which on Thursday reached a 20-year high by increasing the cost of oil imports. Oil prices have fallen from annual highs reached during the start of the Russia-Ukraine war due to concerns over these tendencies. In addition, as the White House gradually drew down the Strategic Petroleum Reserve this year, the U.S. government’s efforts to reduce fuel costs have resulted in a glut of oil on the market.
Russian crude supplies could be further disrupted, however, if the war between Russia and Ukraine escalates, suggesting that prices may rise. Due to the fact that major customers in Europe and Asia mainly rely on Moscow for supply, the initial Russian invasion of Ukraine led to a spike in oil prices in February. Supply constraints might cause oil prices to rise, especially as the fight intensifies.