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Picture: BLOOMBERG
Picture: BLOOMBERG

Tokyo/Beijing — Oil prices fell on Tuesday amid concerns that fuel demand will be crimped by central banks holding interest rates higher for longer, even with supply expected to be tight.

Brent crude futures were down 38c at $92.91 a barrel at 4am GMT, while US West Texas Intermediate crude futures were trading 34c lower at $89.34.

“Fears of an economic recession may again dominate the oil market’s movement due to surging US bond yields following the Fed’s hawkish stance last week,” said Tina Teng, a market analyst at CMC Markets in Auckland.

The world’s top economic policymakers, the US Federal Reserve and the European Central Bank, have over recent days reiterated their commitment to fight inflation, signalling tight policy may persist longer than previously anticipated. Higher interest rates slow economic growth, which curbs oil demand.

Separately on Monday, ratings agency Moody’s said that a US government shutdown would harm the country’s credit, a warning coming one month after Fitch downgraded the US by one notch on the back of a debt-ceiling crisis.

China’s property woes have also weighed on sentiment, CMC’s Teng added, with China Evergrande’s announcement on Monday evening that it had missed a bond coupon payment, driving renewed investor pessimism on the sector.

While supply remains tight as Russia and Saudi Arabia have extended production cuts to the end of the year, Moscow on Monday eased its temporary ban on petrol and diesel exports, issued separately to stabilise the domestic market.

With China’s Golden Week holiday starting from Sunday, oil prices could gain support from a pickup in travel and resulting oil product demand from the world’s second biggest oil consumer.

Oil prices have risen by about 30% since midyear driven mostly by tighter supply, wiping off 0.5 percentage points from the global GDP growth in the second half of this year, according to JPMorgan.

But the shock “is not large enough to threaten the expansion by itself”, JPMorgan added in a note.

“We forecast $94/barrel through the 4Q23 period which is the maximum steepness of the curve we see before Opec is likely to ease its supply constraints,” said Baden Moore, head of carbon and commodity strategy at National Australia Bank. 

Reuters

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