Low oil prices caused by a higher interest rate expectation in early trade

26 Sep 2023 , 10:39 AM

Oil prices fell in early trade on Tuesday due to worries that fuel demand will be hampered by major central banks maintaining higher interest rates for a longer period of time, even if supply is anticipated to be constrained.

U.S. West Texas Intermediate crude futures were trading 1 cent lower at $89.67 and Brent crude futures were down 11 cents at $93.18 a barrel.

The U.S. Federal Reserve and the European Central Bank, two of the most influential economic policy makers in the world, have just reaffirmed their commitment to fighting inflation, suggesting that tight policy may last longer than initially thought. Higher interest rates stifle economic expansion, which lowers demand for oil.

A month after Fitch downgraded the United States by one notch due to a debt ceiling dispute, rating firm Moody’s warned that a government shutdown in the United States would hurt the country’s credit.

Moscow on Monday loosened its temporary restriction on petrol and diesel exports, issued separately to calm the domestic market, even though supply is still scarce since Saudi Arabia and Russia have prolonged output curbs through the end of the year.

With China’s Golden Week holiday beginning on Sunday, an increase in travel and the ensuing demand for oil products from the second-largest oil consumer in the world should strengthen oil prices.

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