Global Central Bank Rate Hikes Deepen Oil Price Decline

Oil prices continue their downward trend as a result of recent interest rate hikes by central banks worldwide, raising concerns about a potential significant economic slowdown. This decline in oil futures throughout the week indicates a worrisome pattern, with repeated tests of support levels between $67 and $69 per barrel.

Analysts at Sevens Report Research have observed that each subsequent rebound in prices has been weaker, suggesting that the oil market is on the verge of a critical turning point. It could either break to new lows for 2023 or surpass the $72-$73 range, potentially triggering a squeeze as the energy markets currently display bearish sentiment and positioning.

Thursday saw a sharp drop in crude prices following interest rate hikes by the Bank of England and the central bank of Norway, both of which raised rates by half a percentage point. Additionally, the Swiss National Bank implemented a quarter percentage point increase. Federal Reserve Chair Jerome Powell, during his second day of congressional testimony, echoed the expectations of policymakers for two more rate hikes after the central bank’s decision to maintain rates at their current level last week. Despite a supportive weekly decrease of 3.8 million barrels in U.S. crude inventories reported by the Energy Information Administration, the focus on central banks has overshadowed this positive development.

The strength of the U.S. dollar against major currencies is also playing a role in the oil price decline. The ICE U.S. Dollar Index, which measures the currency against a basket of six others, has witnessed a 0.6% increase on Friday. A robust dollar exerts pressure on commodities priced in the unit, making them more expensive for users of other currencies. As a result, the combination of central bank rate hikes and a strengthening U.S. dollar has added further downward pressure on oil prices, potentially leading to a weekly loss in the market.