On Tuesday morning, oil prices saw a slight drop on concerns that fuel demand could be affected by major central banks keeping interest rates higher for a longer period of time, despite expectations of a revised offer. Brent crude futures fell 11 cents to $93.18 a barrel, while US West Texas Intermediate crude futures fell 1 cent to $89.67.
The US Federal Reserve and the European Central Bank, the leading economic policy makers, have recently confirmed their commitment to the fight against inflation. This indicates that the restrictive policy measures may continue longer than previously expected. Higher interest rates can lead to lower economic growth, which reduces the demand for oil.
Moody’s, a rating agency, has warned that a possible shutdown of the US government will damage the country’s credit. This warning comes after Fitch downgraded the US by a notch due to concerns of a debt ceiling crisis. These factors contribute to general uncertainty in the global economy.
Although supplies are tight due to production cuts from Russia and Saudi Arabia, Russia recently lifted a temporary ban on gasoline and diesel exports to bolster the domestic market. This decision will ease some concerns about supply.
In addition, with the Golden Week holiday in China, oil prices may receive support from increased travel and the resulting demand for petroleum products. China is the world’s second largest consumer of oil and increased travel during the holiday season may contribute to higher oil prices.
While oil prices have risen by about 30% since the middle of the year, mainly due to tighter supply, JP Morgan suggests that this increase is not enough to threaten the economic expansion. Although it slowed global GDP growth by 0.5% in the second half of the year, the overall impact is believed to be manageable.
In short, concerns about higher interest rates affecting fuel demand, along with a lack of supply, caused a slight drop in oil prices. However, factors such as the possibility of a US government shutdown and the impact of China’s Golden Week may influence market dynamics in the coming days.
