Oil Prices Continue Downward Slide As U.S. Fed Fulfills Analytical Fears

Meanwhile, European governments act to ward off economic crisis: File Image/Pixabay

Oil prices on Wednesday continued their downward slide, with West Texas Intermediate settling  below $83 per barrel after the U.S. Federal Reserve lived up to the fears of analysts and raised interest rates by 75 basis points for the third consecutive time, which critics insist could trigger a full-blown recession.

The bearish sentiment that has been brewing for weeks was supported by the Energy Information Administration reporting that U.S. crude stockpiles climbed by 1.14 million barrels last week; distillate demand (including diesel) fell to 8.5 million barrels per day (bpd), the lowest seasonal level in over a decade.

Also, industry sources said China issued a giant new quota to export refined fuels, which could weigh on oil product markets.

Ed Moya, senior market analyst at Oanda Corp., complained that, “Crude prices remained heavy after the Fed signalled they are going to continue to bring down inflation with more rate hikes even as the economy slows.”

Brent on Wednesday fell 57 cents, or 0.6 percent, to $90.05 per barrel by 15:41 GMT, on track for its lowest close since Sept. 8.; WTI fell 66 cents, or 0.8 percent, during the same time frame, to $83.28, headed for its lowest close since Sept. 7.

Earlier in the session, oil rallied when Russian president Vladimir Putin summoned 300,000 reservists to fight in Ukraine and endorsed a plan to annex parts of the country, while telling western media he was prepared to use any options to defend the security of his country, including nuclear.

Signs of a demand recovery in China accompanying a relaxation of some Covid lockdowns also gave prices a lift early in the session.

Meanwhile in Europe, EBW Analytics said in a note that “governments are increasingly intervening in energy markets in an attempt to stave off economic crisis.”

Indeed, Germany agreed to nationalize Uniper SE, while the British government said it will cap wholesale electricity and gas costs for businesses.

Finland’s Fortum announced in a statement on Wednesday that “Since the stabilization package for Uniper was agreed in July, Uniper’s situation has further deteriorated rapidly and significantly; as such, new measures to resolve the situation have been agreed.”

But there is still considerable optimism from many fronts that the oil market is headed towards bullish territory: the Monthly Oil Market Report stated that “in 2023, expectations for healthy global economic growth, combined with anticipated improvements in the containment of COVID-19 in China, are expected to boost oil consumption.”