Oil price surge sparks Fed rate hike fears in Asian market

September 06, 2023 (MLN): Most Asian markets fell Wednesday as a jump in oil prices to 10-month highs rekindled worries of another US Federal Reserve interest rate hike, as APP reported.

The selling came after US traders returned from a long weekend to spark a sell-off after Saudi Arabia and Russia said they would extend crude output cuts to the end of the year.

The news, which surprised some owing to the length of time, sent both main oil contracts to levels not seen since November, with Brent above $90 for the first time this year. They were marginally higher on Wednesday.

The price spike hit hopes the Fed's monetary tightening drive was over following a string of data indicating more than a year of rate hikes had managed to bring inflation down from four-decade highs and soften the labour market.

Observers said higher energy costs would complicate the central bank's work as they accounted for a large part of the surge in prices in the wake of Russia's invasion of Ukraine.

"Rising oil prices are officially the new inflation stoker," said Stephen Innes at SPI Asset Management. "Everyone notices that this rally feels different, suggesting that 'Oil', the Great Inflationary Dragon, is not yet slain."

Meanwhile, US monetary policymakers offered differing outlooks on the way forward.

Fed Governor Christopher Waller said decision-makers had room to stand back to assess the impact of past tightening, telling CNBC: "There was nothing that is saying we need to do anything imminent anytime soon."

But Cleveland Fed boss Loretta Mester said she could "well imagine, from what I see so far, that we might have to go a bit higher".

Rates are already at a two-decade high and some analysts warn that further increases could risk tipping the world's top economy into recession.

Copyright Mettis Link News