Oil prices experienced a decline of 4% on Wednesday, which extended from the previous session’s steep losses. The reason for the drop was due to the US Federal Reserve raising interest rates, and investors being concerned about the economy. Brent futures fell to $72.33 a barrel, a 4% drop, which is the benchmark’s lowest close since December 2021. US West Texas Intermediate crude also fell by 4.3% to $68.60 a barrel. Both benchmarks had their biggest daily percentage decline since early January when they fell 5% the day before.
The Fed’s decision to raise interest rates by a quarter of a percentage point on Wednesday afternoon added further pressure to oil prices. This caused traders to worry that slower economic growth could hit energy demand. However, the Fed also indicated that it may pause further increases, which would give officials time to assess the fallout from recent bank failures and monitor inflation.
Moreover, U.S. gasoline inventories unexpectedly rose by 1.7 million barrels last week, which also put pressure on oil prices. This was in contrast to analysts polled by Reuters who had anticipated a 1.2 million-barrel drop. U.S. crude inventories fell by 1.3 million barrels, which was below the expected 1.1 million-barrel drop.
Finally, Morgan Stanley lowered its forecast for Brent prices to $75 a barrel by the end of the year due to downside risks to Russia’s supply and upside risks to China’s demand, both of which have weakened.
