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Oil Price Fundamental Daily Forecast – Strong Selling Tied to Central Bank Rate Hike Fears

By:
James Hyerczyk
Updated: Sep 20, 2022, 14:06 UTC

With a multitude of central banks aggressively raising rates, it seems inevitable that the world’s appetite for crude oil would eventually slow.

WTI and Brent Crude Oil

In this article:

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower after giving up earlier gains as the markets continue to bounce inside its two-week range.

Crude oil strengthened earlier in the session amid reports showing OPEC and its allies produced less than their quotas. However, gains were erased on fears that a series of aggressive rate hikes by a number of central banks would push the global economy into recession, curbing fuel demand.

At 13:41 GMT, November WTI crude oil is trading $83.95, down $1.41 or -1.65%. This is down from an intraday high of $86.12. The December Brent crude oil futures contract is at $89.54, down $1.12 or -1.24%. Earlier in the session, it reached a high of $91.54. The United States Oil Fund ETF (USO) is trading $69.26, down $0.79 or -1.13%.

OPEC+ Production Miss Highlights Tight Supply Situation

OPEC+ fell short of its oil production target by 3.583 million barrels per day (bpd) in August, and internal document showed, having missed its target by 2.892 bpd in July, Reuters reported. Prices jumped on the news since it represents a sign of underlying tight supply.

In related news, the impasse over a revival of the Iran nuclear deal is also continuing to keep that country’s exports from fully returning to the market. Look for crude oil prices to retreat if the deal goes through.

When crude oil was trading near the $110 level, the Biden Administration was eager to get this deal completed. Now that oil prices have fallen more than $30 from their highs of the year, the U.S. government doesn’t seem as interested in the deal.

Rate Hikes Weighing on Prices

I don’t think it’s a coincidence that oil prices topped out in March just as the Fed started to raise interest rates. The steep decline in prices is also tightly correlated with the pace of subsequent rate hikes. Therefore, it comes as no surprise that prices are near their lows of the year as the Fed gets ready for another supersized rate hike of 75 basis points on Wednesday. Some traders are also bracing for the possibility of a 100 basis point rate hike.

Even though the market is pricing in a 75 basis point hike, the reaction is still likely to be to the downside. A 100 basis point rate hike could drive crude oil prices into new lows for the year.

One reason crude could drop sharply following another big rate hike is the move could drive the U.S. Dollar to a new more than two decade high. This would weigh on demand for dollar-denominated crude oil. Another reason we’re expecting the initial reaction to the rate hike to be bearish for crude oil is the fear of a global recession.

With a multitude of central banks aggressively raising rates, it seems inevitable that the world’s appetite for crude oil and fuel would eventually slow.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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