- The US Federal Reserve announced more interest rate hikes for 2023.
- Government data revealed a significant unexpected increase in US crude oil stocks.
- The International Energy Agency raised its annual oil demand growth estimate by 200,000bpd.
Oil prices fell by 1.5% on Wednesday after the US Federal Reserve announced more interest rate hikes for 2023. This news raised concerns about demand in the market, especially after government data revealed a significant unexpected increase in US crude oil stocks.
Oil had climbed more than 1.5% earlier in the session. The previous day, it experienced a surge of more than 3% due to expectations of increased fuel demand after China’s central bank lowered a short-term lending rate.
WTI and Brent futures (Source: ICE, Nymex)
Although the Federal Reserve kept interest rates unchanged, its new economic projections indicated that borrowing costs will likely rise by an additional half percentage point by the end of the year. This decision is a response to a stronger-than-expected economy and a slower decline in inflation.
Fed Chair Jerome Powell held a press conference during the central bank’s recent policy meeting. He stated that US growth and the job market had performed more robustly than anticipated despite the rigorous monetary policy tightening implemented over the past year.
This observation suggests that the Fed will likely need more time to address inflation but can continue its efforts with minimal economic harm. Higher rates lead to a stronger dollar, making commodities in US currency more expensive for holders of other currencies.
The Energy Information Administration reported an approximately 8 million barrel increase in US crude oil stocks for the week ending on June 9, contrary to analysts’ expectations of a 500,000-barrel decrease. Gasoline and diesel stocks also experienced a larger-than-anticipated rise.
In contrast, the International Energy Agency raised its annual oil demand growth forecast by 200,000 barrels per day (bpd) to 2.4 million bpd. This results in a projected total of 102.3 million bpd.
However, the agency predicts economic challenges will reduce growth to 860,000 bpd next year. The increasing usage of electric vehicles will further lower it to 400,000 bpd by 2028, resulting in an overall demand of 105.7 million bpd.
The IEA’s 2023 oil demand growth estimate slightly exceeds that of the Organization of the Petroleum Exporting Countries. Meanwhile, JPMorgan downgraded its average Brent crude price forecast this year by $9 to $81 per barrel.