Oil prices retreat ahead of Fed’s rate hike

Oil prices dropped on Tuesday, following other risk assets’ downtrend, while the US dollar remains strong and investors anticipate more central bank interest-rate hikes designed to contain inflation.

The US Federal Reserve is expected to raise interest rates by another 75 basis points on Wednesday in an additional step aiming at controlling inflation. Expectations are weighing on equities, which often move closely with oil prices. Other central banks, including the Bank of England, meet this week as well.

Higher rates have boosted the dollar, which remained near a two-decade high against rival currencies on Tuesday, making oil more expensive for holders of other currencies.

The oil market is caught between downward concerns and upside hopes. The concerns are driven by the aggressive monetary tightening by both the Fed and the ECB, and in turn increase the likelihood of a recession and might weigh on oil demand prospects.
Brent crude futures for November settlement fell by $1.57 to $89.10 per barrel at the time of writing versus the previous closing price at $90.67. WTI crude for October delivery is trading at $83.45, down $1.81 at the time of writing. The October contract will expire on Tuesday and the more active November contract was down $1.63, or 1.9%, at $83.73.

Both Brent and WTI are on track for their worst quarterly drops in percentage terms since the beginning of the coronavirus pandemic. Brent hit about $139 a barrel in March for its highest since 2008.