Oil prices inched down on Wednesday. It also extended the previous day’s losses, as investors braced for another aggressive interest rate hike from the U.S. Federal Reserve that they fear could lead to recession and plunging fuel demand.
Brent crude futures dipped 26 cents, or 0.3 percent, to $90.36 a barrel by 0040 GMT after falling $1.38 the previous day.
U.S. West Texas Intermediate crude stood at $83.74 a barrel, inched down 20 cents, or 0.2 percent. The October delivery contract expired down $1.28 on Tuesday. Moreover, the more active November contract lost $1.42.
“The market tone remained bearish due to concerns that the aggressive monetary tightening in the U.S. and Europe would boost the likelihood of a recession and a slump in fuel demand,” an analyst at Fujitomi Securities Co Ltd Toshitaka Tazawa stated.
“Since oil prices have been falling in the anticipation of the rate hikes, they may briefly rise after the announcements, but they will likely return to a downward trend again on fears over weakening demand,” he pointed.
The Fed is highly expected to hike rates by 75 basis points for the third time in a row following on Wednesday in its drive to rein in inflation.
Other central banks, including the Bank of England, are going to meet this week as well.
Higher rates have boosted the dollar, which neared a two-decade high on Tuesday, making oil more expensive for holders of other currencies.
On the other hand, U.S. crude and fuel stocks edged up by about 1 million barrels for the week ended Sept. 16., according to market sources citing American Petroleum Institute figures on Tuesday. Gasoline inventories inched up by about 3.2 million barrels, while distillate stocks rose by about 1.5 million barrels.
U.S. crude oil and distillate stockpiles were awaited to have heightened last week, while gasoline inventories were seen lower, according to an extended Reuters poll.
On the supply side, the OPEC+ is now dipping a record 3.58 million barrels per day short of its targets, or about 3.5 percent of world demand. The shortfall shed light on underlying tightness of supply in the market, even as recession fears drag prices lower.
The head of Saudi state oil giant Aramco insured on Tuesday Europe’s plans to cap energy bills for consumers and tax energy companies were not long-term or helpful solutions for the global energy crisis, spurred largely by under-investment in hydrocarbons.
