Oil prices dropped over $2 per barrel in this morning’s trading as investors fear further rate hikes from the Federal Reserve this week, when it meets to discuss interest rates.
Concerns over flagging fuel demand in China and rising supplies of Russian crude are also weighing down both major benchmarks.
Brent Crude has dipped 2.58 per cent to $72.86 per barrel while WTI Crude plummeted 2.91 per cent to $68.13 per barrel.
This follows both benchmarks reporting their second week of declining prices this month.
The Fed is set for a two-day session – finishing on Wednesday – and its hawkish response since inflation rose last summer has strengthened the US dollar.
As it stands, interest rates set at 5-5.25 per cent, driving down prices and making commodities more expensive for holders of other currencies.
Ricardo Evangelista, senior analyst at Activ Trades said: “. The consensus amongst analysts is that the central bank will keep interest rates on hold, but observers will focus on the tone used to deliver the announcement.
“Should the Fed continue to focus on fighting persistently high inflation through stringent monetary tightening, it will eventually achieve its objective, but the side effect will be an economic slowdown. It’s this perspective of a Fed-driven decline in demand that is now being discounted by investors, creating a downside for oil prices.”
Meanwhile, persistently gloomy economic data from China has raised concerns about demand in the world’s largest crude importer.
Fiona Cincotta, senior financial markets analyst at City Index argued that global recession fears will continue to drag on the demand outlook – despite OPEC cuts and its attempt to prop up prices.
“Oil fell last week after disappointing Chinese data raised concerns over the strength of the recovery of China, the world’s largest importer of oil. This offset the production cut of one million barrels per day announced by Saudi Arabia,” she said.
Saudi Arabia’s energy minister Prince Abdulaziz bin Salman warned last weekend that OPEC+ was battling against “uncertainities and sentiment” within the market.
While Saudi Arabia has cut oil production four times in the past year, Russian production has held up as sanctions have had less of an impact on output .
The Kremlin’s exports to China and India have risen despite Western sanctions, and the G7’s price cap.
This has caused Goldman Sachs to slash its oil price forecasts, alongside more output from Iran and Venezuela.
Its crude price forecast for December 2023 now stands at $86 a barrel for Brent, down from $95, and at $81 per barrel for WTI, down from $89.