ALBAWABA – Oil prices slipped Monday on anticipation of further interest rate hikes by the United States (US) Federal Reserve (Fed) and the European Central Bank (ECB), news agencies reported.
Meanwhile, traders are holding for Chinese stimulus to bolster demand, as Brent crude oil prices fluctuate above the $80 barrier, according to Reuters.
Oil prices dipped 0.2 percent Monday morning, to $80.91 and $76.9 per barrel of Brent and West Texas Intermediate crudes, respectively.
Both benchmarks rose 1.5 and 2.2 percent, respectively, last week, on the fourth week of gains, as supply is expected to tighten following a series of output cuts.
Members of the Organization of Petroleum Exporting Countries and their allies (OPEC+) agreed to several cuts in 2023. The latest of which were the Saudi Arabian and Russia supply cuts, with the Saudis announcing an additional cut, which will carry on through August.
On the other hand, "another Fed rate hike this week may drive some short-term price volatility, we expect tightening market conditions on OPEC's supply cuts and increasing market speculation of further stimulus in China to continue to push prices higher through 3Q23," analysts from National Australian Bank said in a note, as reported by Reuters.
Fed policymakers are widely expected to deliver another rate increase at tomorrow’s meeting in their effort to rein in inflation, according to Bloomberg.
Higher interest rates risk tipping the world’s largest economy into recession, potentially harming demand for oil.
Alternatively, even without a recession, higher interest rates raise the costs of oil for importers settling in currencies other than the US dollar, which in turn also harms demand.
“Expectations of a Fed rate hike may be putting some pressure on the market. But this hike should already be largely priced in,” Warren Patterson, head of commodities strategy at ING Groep NV told Bloomberg.
“Ultimately, we believe oil prices will break out to the upside given the tightening fundamentals. However, there is some strong technical resistance nearby in the short term, in the form of the 200-day moving average,” he noted.
CMC Markets analyst Leon Li told Reuters that he expects WTI oil prices to eventually reach $80 again on a "seasonal demand rebound".
