As fears of a global recession deepen, oil prices could end the week with the first five-day consecutive losses since April, Bloomberg reported, also noting the Fed’s intention to tighten monetary policy even more.
Last week, the US Federal Reserve announced the biggest rate hike since 1994, at 0.75 percentage points, as it tries to curb inflation with all available funds. The move has caused concern among lawmakers, and this week the Fed chairman testified before the Senate Banking Committee.
In it, the employee acknowledged that the recession, although not the desired result of the tightening of funds, is “certainly possible.” Powell added that the success of this latest tightening boost depends on external factors, citing the war in Ukraine and China’s Covid policies, which have seen the country block several major cities and regions, affecting supply chains.
As a result of this tightening, oil prices are falling this week as the market prepares for the possibility of a recession in the world’s largest consumer. On Thursday alone, oil fell more than 2 percent after Powell’s comments to the Senate, especially after the Fed chief said his focus on curbing inflation was “unconditional,” Reuters reported.
There are also signs of a possible drop in demand, with the WSJ announcing this week that drivers in the United States are limiting consumption through a variety of measures, including shared travel, travel cancellation and work from home.
The latest economic data also did not help. The rapid June reading of the index of purchase managers revealed a decline, heightening fears of a possible recession and weighing on prices.
However, as supplies remain limited, oil volatility remains higher than usual.
“Under these conditions, higher crude oil prices will become super sensitive to any perceived or otherwise increased supplies,” Stephen Ines, managing partner of SPI Asset Management, told Reuters.
By Irina Slav for Oilprice.com
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