International oil prices continued their decline on Friday, June 23, with a substantial drop in early New York trading.
Specifically, the price of West Texas Intermediate (WTI) crude oil for delivery in August on the New York Mercantile Exchange fell by 1.88%, reaching $68.20 per barrel. At one point during the day, the price dropped by over 3%. The price of Brent crude oil futures for August delivery also decreased by 1.3% to $73.12 per barrel, with a daily drop surpassing 2.7%. The day prior, both these oil price benchmarks declined by 4.16% and 3.86% respectively.
Market analysis suggests that this two-day precipitous drop in oil prices can be largely attributed to collective interest rate hikes by several central banks, some of which exceeded market expectations. The Bank of England, for instance, announced its 13th consecutive rate hike since December 2012, which at 50 basis points, was higher than the expected 25 points.
On the same day, other G10 currency central banks, such as Norway, announced an increase in the benchmark interest rate from 3.25% to 3.75%, surpassing the market's expected rate of 3.5%. The Swiss central bank also increased interest rates by 25 basis points to 1.75%. Additionally, the Central Bank of Turkey, often viewed as the outlier among central banks, announced a substantial rate hike of 650 basis points, raising the policy interest rate from 8.5% to 15%, nearly doubling it.
Analysts stated that these actions by the central banks amplified concerns about global economic growth, overshadowing the positive impact of decreasing U.S. crude oil inventories on oil prices. Tamas Varga, an analyst from PVM, the world's largest over-the-counter crude oil broker, stated that market anxieties have clearly increased following these central bank actions.
Higher interest rates typically increase borrowing costs for businesses and consumers, which in turn can slow economic growth, affecting the prospects for oil demand for the rest of the year. Varga added that worries about recession might intensify economic headwinds, with a significant decrease in inventories possibly being the only way to change this ominous outlook.
Earlier in the week, Federal Reserve Chairman Jerome Powell reinforced the expectation of further rate hikes during a congressional hearing. He stated that U.S. inflation pressure remains high, and the process of curbing inflation back to 2% will be a long and challenging task.
Meanwhile, the dot plot released by the Federal Reserve last week also suggested that officials anticipate one to two rate hikes later this year. These statements provided support for the U.S. dollar index and put pressure on a series of commodities priced in U.S. dollars.
