As fears of a global recession intensify, oil prices could end the week with the first losses in five consecutive days since April, Bloomberg reported, which also noted the Fed’s intention to to further tighten monetary policy.
Last week, the U.S. central bank announced the largest rate hike since 1994, by 0.75 percentage points, as it tries to curb inflation by all available means. The move sparked concern among lawmakers and this week, the Fed chairman testified before the Senate banking committee.
In it, the official admitted that a recession, while not the desired outcome of the monetary tightening, was “certainly a possibility.” Powell added that the success of this latest hardening push depended on external factors, citing the war in Ukraine and Covid’s policies in China that have seen the country block several major cities and regions, which has affected supply chains.
As a result of this tightening, oil prices have been falling this week as the market prepares for the possibility of a recession from the world’s largest consumer. On Thursday alone, oil fell more than 2 percent after Powell’s comments to the Senate, mostly because the Fed’s char said its approach to curbing inflation was “unconditional,” Reuters reported.
There are also indications of possible destruction of demand, and the WSJ reported this week that U.S. drivers were curbing consumption through various measures, such as car sharing, canceling trips, and working from home.
The latest economic data did not help either. A quick June reading of the manufacturing sector’s purchasing managers ’index revealed a decline, reinforcing concern over a possible recession and weighing on prices.
However, with continued supply, oil volatility remains higher than usual.
“Under these conditions, higher crude oil prices will become very sensitive to any contribution perceived or otherwise increased,” Stephen Innes, SPI’s asset management managing partner, told Reuters this week.
By Irina Slav for Oilprice.com
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