ISLAMABAD
Oil prices extended losses on Friday amid fears of a global slowdown after the US Federal Reserve indicated more interest rate hikes in the second half of the year while the Bank of England opted for a 50-basis-point interest rate hike.
As of 1225 hours GMT, Brent, the international benchmark for two-thirds of the world’s oil, shed $0.92 (-1.24 percent) to reach $73.22 a barrel. The West Texas Intermediate (WTI), the main oil benchmark for North America, went down by $0.99 (-1.42 percent) to $68.52 a barrel.
Similarly, the price of Russian Sokol decreased by $3.10 (-4.57 percent) to $64.75. Arab Light prices witnessed a decrease of $3.10 (-3.88 percent) to reach $76.75 a barrel. However, the price for Opec Basket went up by $0.39 (+0.51 percent) to $77.24. The OPEC Reference Basket of Crudes (ORB) is made up of Saharan Blend, Girassol, Djeno, Zafiro, Rabi Light, Iran Heavy, Basra Light, Kuwait Export, Es Sider, Bonny Light, Arab Light, Murban and Merey.
Recession fears mount again following central banks’ rate hikes and a hawkish Fed. The oil market remains torn between supportive fundamentals and an uncertain macro outlook, as interest rate hikes will weigh on prices.
China’s oil demand has been on the rise so far this year despite mixed signals coming from its monthly PMI readings and other economic indicators. In the US, demand for fuels has reached the highest since December and jet fuel demand has risen to the highest since this time last year, which is also good news for oil markets.
On the other hand, China’s much-awaited economic stimulus has also been underwhelming, further weighing on oil prices and the prospects of oil demand. China’s demand outlook is crucial for the global market, given that the bulk of global demand growth this year is expected to be driven by China. Significantly weaker Chinese demand would also mean that the global oil balance would not be as tight as currently expected over the second half of 2023.
US Federal Reserve Chair Powell has told Congress in his half-year testimony on the economy that further rate hikes would be necessary to fight inflation. The outlook for two more rate hikes by the end of 2023, included in the Summary of Economic Projections released by the Fed last week, “is a pretty good guess of what will happen if the economy performs about as expected,” Powell said.
In a similar move, the Bank of England surprised markets with a large 50-basis-point interest rate hike, the 13th consecutive increase, after inflation data from Wednesday showed the UK’s May inflation was stuck at an annual 8.7 percent, flat compared to April and higher than expectations.
