Oil Prices Tumble as Global Economy Slows and Interest Rate Hike Looms

Introduction

Oil prices tumbled early in Asian deals on Monday as worries about a slowdown in the global economy and the possibility of an increase in interest rates by the Federal Reserve (US central bank) coincided with expectations of reduced supplies in light of cuts. This was stated by the OPEC+ group.

Price Decline

Brent futures fell 20 cents, or 0.3%, to $75.21 a barrel by 0044 GMT after rising 0.8% on Friday. US West Texas Intermediate crude fell 23 cents, or 0.3%, to $70.41 after rising 1.1% in the previous session.

Global Slowdown

At the end of June, Brent oil prices fell for the fourth consecutive quarter, while WTI recorded its second quarterly decline as the world’s two largest economies, the US and China, slowed in the second quarter.

Inflation and Interest Rates

Concerns about a further slowdown in fuel demand growth intensified after data on Friday showed that inflation in the United States was still above the central bank’s 2% target and raised expectations that it would raise interest rates again.

“Hawkish comments on interest rates continue to raise concerns about the demand outlook driving prices,” analysts at the National Bank of Australia said in a note.

Higher interest rates will strengthen the US currency, making goods more expensive for holders of other currencies, and reduce demand for oil.

Supply and Demand Outlook

Some analysts expect supplies to drop and prices to rise in the second half of the year after Saudi Arabia, the world’s largest oil exporter, promised in July to cut production by about 1 million bpd more as the United States gradually replenishes its strategic reserves of oil.

A Reuters poll showed that OPEC oil production fell only marginally in June, as output growth in Iraq and Nigeria limited the impact of cuts by other producers.