Oil prices keep declining ahead of latest US Fed minutes

Oil prices are trading lower on heightened concerns about the global economy and further rate hikes by the US Federal Reserve.

Brent Crude futures for March were down 2.4 percent to $80.16 a barrel just before 11 a.m., while West Texas Intermediate oil was down 2.3 percent to $75.37 a barrel.

Both benchmarks are now more than $4 below their equivalent point yesterday and much lower than they were in the summer of 2022, following Russia’s full-scale invasion of Ukraine.

It comes ahead of the release of the minutes of the most recent US Federal Reserve policy meeting in December, which will provide an indication of how much the central bank will raise Fed Funds rates in 2023.

The central bank has raised interest rates seven consecutive times, following four consecutive 75 basis point increases of 50 basis points to 4.25 to 4.5 percent at the last meeting.

While these measures have helped lower the US inflation rate to 7.1 percent, it remains well above the 2 percent target, meaning additional rate hikes are more than likely.

Rising interest rates increase the cost of borrowing while reducing spending on goods such as gasoline, driving oil prices down or slowing their growth.

However, an increase in the cost of borrowing also weakens economic growth.

Former Fed chairman Alan Greenspan warned that a recession would be the “most likely outcome” needed to reduce US inflation this year.

During a Q&A session on Advisors Capital Management’s website, where he is a senior economic adviser, Greenspan, 96, said more needed to be done to get the teeth out of price increases.

“Wage increases, and by extension employment, need to slow further for a fall in inflation to be anything more than temporary,” he added.

“So we may have a brief period of calm on the inflation front, but I think it will be too little too late.”

His remarks follow warnings from Kristalina Georgieva, the chief executive of the International Monetary Fund, that a third of the world’s economy could slide into recession this year.

The Bulgarian-born economist said this would be a result of the economies of the US, European Union and China “all slowing down at the same time.”

Over the past three years, China’s economy has been hit hard by draconian Covid-19 restrictions, especially in 2022, which caused massive disruption in major cities and depressed consumer demand for oil.

Advisors in the world’s second-largest economy reported on Tuesday that authorities had increased export quotas for refined oil products by nearly half to 19 million tonnes.

Such a move could incentivize Chinese refiners to process more crude and sell more to the EU, where the ban on Russian crude is expected to take effect on February 5.

Meanwhile, Saudi Arabia signaled it could cut prices of its flagship Arabian light crude heading to Asia next month, having already slashed prices to a 10-month low for January shipments.

The commotion in the oil markets sent shares of London-listed energy majors down in early trading.

BPPort energy and Shell all in the top ten fallers on the FTSE 100, although the index still rose modestly.

Russ Mould, AJ Bell’s investment director, said: “Investors are increasingly concerned about the current Covid situation in China, where an easing of restrictions is leading to an increase in cases.

“Thanks to less effective vaccines and a population with much less natural immunity, China is well behind the West in recovering from the pandemic, and this has implications for global growth and global supply chains.”