Despite a little increase on Friday, oil prices continued to drop for the week due to concerns over sudden interest rate increases that would hurt the global economy and fuel consumption.
As of 03:15 GMT, Brent oil futures were up 24 cents, or 0.3%, to $91.08 a barrel. Still, it had lost 1.9% of its value for the week. Despite rising 10 cents, or 0.1%, to $85.20 per barrel, U.S. West Texas Intermediate (WTI) oil futures were down 1.9% weekly. According to Leon Li, an analyst at CMC Markets, today’s morning rally for oil prices can only be regarded as a short-term correction, as the Fed will increase interest rates by 75bp or 100bp next week. Despite being unlikely, a rate increase of 100 basis points would be unsettling for the market. Therefore, there is still a chance that oil prices will decline next week.
Both benchmarks are on track to lose money for the third week, partly due to the strong dollar, which makes buying oil with foreign currencies more expensive. The dollar index dipped slightly on Friday but continued to trade close to the week’s high of over 110.
Investors Remain Concerned
Investors are preparing for a U.S. rate rise next week after underlying inflation data showed a broadening and worries about a worldwide recession have grown. The International Energy Agency’s prediction of almost no rise in oil consumption in the fourth quarter due to a deteriorating forecast for Chinese demand also shook the market.
As long as China’s demand forecast is uncertain and the Fed continues to battle inflation, the prognosis for the U.S. economy will likely worsen, according to OANDA analyst Edward Moya. According to analysts, the U.S. Department of Energy’s remarks that it was unlikely to try to refill the Strategic Petroleum Reserve until fiscal 2023 hurt confidence. As Western authorities downplayed the likelihood of restarting a nuclear agreement with Tehran, the market has found some support on the supply side due to declining expectations of Iranian crude returning.