Oil prices fell over 1% on Wednesday after fears of more aggressive rate hikes by the U.S. Federal Reserve continued to compound, with losses extending.
On Tuesday, Federal Reserve Chairman Jerome Powell said the Fed would most likely find it necessary to raise interest more than expected to control inflation as a result of strong U.S. economic data.
Fed funds futures traders interviewed by Reuters now see a 66% probability that the Fed will raise interest rates by 50 basis points at the next meeting on March 21-22. Prior to Powell’s Tuesday testimony before the U.S. Senate, traders put the probability of such a move at only 22%.
The Fed’s hawkishness was putting downward pressure on crude oil prices on Tuesday and Wednesday.
Oil markets are now concerned that the Fed’s policy may be to raise interest rates higher and for longer, which would stifle economic growth and oil demand.
At 12:47 p.m. EST on Wednesday, Brent crude was down 0.84% at $82.59, down 70 cents on the day. WTI was trading down 1.22%, at $76.63, down 96 cents on the day.
Also weighing on oil prices on Wednesday was a mixed inventory report from the Energy Information Administration (EIA). The markets initially appeared to interview the weekly inventory report as positive, with a 1.7 million-barrel draw on crude inventory for the week to March 3, compared with a 1.2-million-barrel build the previous week.
However, Fed hawkishness has continued to be the strongest driver of prices today.
As prices extended their losses from Tuesday to Wednesday, Barclays slashed its Brent crude oil forecast for 2022 to $92, shaving $6 off its earlier forecast, citing Russian resilience amid sanctions. Barclays also cut its 2023 WTI forecast by $7 to $87 per barrel.
By Tom Kool for Oilprice.com
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2023-03-08 18:19:00Z
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