Oil prices continued to plummet on Wednesday, with Brent futures dropping by 4 percent to $72.33 a barrel, marking the global benchmark’s lowest close since December 2021.
Meanwhile, US West Texas Intermediate crude (WTI) fell 4.3 percent to $68.60 a barrel, hitting its lowest level since March 24.
The drop in oil prices was instigated by the US Federal Reserve’s choice to increase interest rates while investors were anxious about the state of the economy.
The US Federal Reserve’s decision to increase interest rates by 0.25 percent raised concerns among traders about the potential negative impact on energy demand due to slower economic growth.
However, the Fed hinted that it might halt further rate increases, giving officials time to evaluate the effects of recent bank failures, the political deadlock over the US debt ceiling, and inflation.
Phil Flynn, an analyst at Price Futures Group, told Reuters that the Fed’s rate pause could be beneficial for oil prices. “The big question is whether or not we’re going to have more shoes drop in the banking sector,” he added.
As the European Central Bank is set to hold its policy meeting on Thursday, it is widely expected that they will raise rates, further compounding the downward pressure on oil prices.
In China, the world’s largest energy consumer and top crude oil buyer, manufacturing activity unexpectedly fell in April, adding to the bearish sentiment in the oil market.
Morgan Stanley lowered its forecast for Brent prices to $75 a barrel by year-end. “Downside risk to Russia’s supply and upside risk to China’s demand have largely played out and prospects for 2H tightness have weakened,” the bank said in a note, referring to buoyant exports from Russia despite Western sanctions.
As the oil market continues to be plagued by various macroeconomic factors, traders are closely monitoring the situation in the banking sector and the ongoing policy decisions made by central banks.
The recent decline in oil prices has caused concerns for oil-producing countries as they struggle to balance their budgets and generate revenue.
As the situation remains uncertain, the oil market may experience further volatility in the coming weeks.
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