The dollar rose on Thursday due to a rise in U.S. interest rates, heightening concerns about a potential global recession that would reduce gasoline demand. However, worries about a supply shortage restrained losses in the oil market.
By 11:35 GMT, West Texas Intermediate (WTI) oil futures in the United States had lost $1.31, or 1.5%, to $88.69, while Brent crude had decreased by $1.19, or 1.2%, to $94.97 a barrel. The U.S. Federal Reserve raised interest rates by 75 basis points on Wednesday, and Chair Jerome Powell indicated it was too soon to think about stopping rate hikes. Nevertheless, both benchmarks increased by more than $1 on Wednesday thanks to a further decline in U.S. oil stockpiles.
What Are the Possible Outcomes?
Powell’s comment that U.S. rates should peak above current investor forecasts led to a rise in the dollar on Thursday. A strong dollar lowers its demand by making oil more costly for customers using other currencies.
According to PVM Oil analyst Tamas Varga, rising fear over the stalled economy will influence global oil consumption. Another lower revision in the next batch of projections is not a far-fetched thought. However, the likelihood that the oil market may tighten in the coming months has limited losses. The SPI Asset Management managing partner, Stephen Innes, said it was unlikely that oil has held up so well after the Fed’s action, but he added that fundamentals had given prices a base.
The embargo on Russian oil from the European Union due to its invasion of Ukraine should begin on December 5 and end in February. The Organization of the Petroleum Exporting Countries (OPEC), whose output dipped in October for the first time since June, also contributed to price support. According to a poll, OPEC produced 29.71 million barrels per day (BPD) in October, which is 20,000 BPD less than in September, when production reached its highest level since April 2020. The firm fell short of its October production goals by 1.36 million BPD.