Oil resumes slide on demand worries after UK rate hike

Edited by Damilola Adeleke

Oil prices resumed their downward trend on Friday, facing a weekly decline of over 3%. Concerns about global demand were ignited by a higher-than-expected interest rate hike in the United Kingdom and warnings of impending rate increases in the United States. Brent futures experienced a slip of 56 cents, equivalent to 0.8%, reaching $73.58 per barrel. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures dropped 60 cents, or 0.9%, to $68.91, as of 0655 GMT.

Tina Teng, an analyst at CMC Markets, highlighted mounting concerns of a potential recession due to the rate hikes by central banks and a hawkish stance from the Federal Reserve. Additionally, the strengthening of the dollar throughout the week, with a 0.3% increase, weighed on oil prices. A stronger dollar makes oil more expensive for holders of other currencies, thus impacting demand negatively.

Both crude benchmarks experienced a decline of approximately $3 in the previous session after the Bank of England implemented a half-percentage-point increase in interest rates, triggering fears of an economic slowdown that could dampen fuel demand. Market participants are eagerly awaiting the release of Purchasing Managers Indexes (PMIs) from various countries on Friday to gain insights into manufacturing activity and demand trends.

In the United States, the Energy Information Administration reported a surprising drawdown in crude stocks last week, attributed to robust export demand and low imports. However, gasoline and distillate inventories saw an increase.

Federal Reserve Chair Jerome Powell stated that the central bank would proceed cautiously with interest rate adjustments as policymakers approach the conclusion of their historic monetary tightening measures. Higher interest rates raise borrowing costs for businesses and consumers, potentially leading to slower economic growth and reduced oil demand. The outlook for fuel demand throughout the remainder of the year has been clouded by fears of rate hikes by major central banks