Crude oil prices experienced a significant decline in the Asian market on Thursday, following the Federal Reserve’s warning of a possible increase in U.S. interest rates. This development led investors to secure their recent gains, despite ongoing expectations of limited supply that could potentially boost crude oil’s future prospects.
Both West Texas Intermediate (WTI) and Brent oil futures witnessed notable declines. WTI fell below the $90 per barrel threshold, while Brent also saw a sharp drop from its 10-month peak earlier this week, as markets underwent a wave of profit-taking.
On Wednesday, the Federal Reserve kept interest rates steady but cautioned that persistent inflation could necessitate at least one more rate increase this year. The central bank also hinted at fewer rate cuts in the coming year. This news bolstered the dollar, resulting in losses across various financial markets. By 20:17 ET (00:17 GMT), Brent oil futures had declined by 0.4% to reach $93.08 per barrel, while WTI futures fell by 0.6% to $89.17 per barrel, marking the third consecutive session of losses after reaching 10-month highs.
The potential rise in interest rates is a source of concern as it could adversely affect economic activity and, consequently, crude oil demand. Alongside the Federal Reserve, interest rate decisions from the Bank of England and the Bank of Japan are also expected this week.
Notwithstanding these developments, factors such as potential supply constraints that drove crude oil prices to their highest levels in 2023 remain pertinent. Some analysts suggest that these conditions could further propel oil prices upward.
Data released on Wednesday revealed that U.S. crude inventories experienced a slightly smaller decrease than expected for the week ending September 15. However, gasoline and distillates saw an unexpected drawdown as refiners reduced production with the end of summer.
This overall decline in inventories was also influenced by robust oil exports, indicating that global crude demand remains resilient. The inventory data highlights that U.S. oil markets continue to experience tightness, supporting predictions of increasingly constrained global supplies in the coming months.
