Oil slumps on UK rate hike, Powell's remarks

June 23, 2023 (MLN): Oil prices fell on Friday amid a higher-than-expected interest rate hike in Britain on top of Federal Reserve chair Jerome Powell's statement that policymakers expect interest rates to move higher.

Brent crude is currently trading at $73.55 per barrel, down by 0.99% on the day.

While West Texas Intermediate crude (WTI) is trading at $68.77 per barrel, down by 1% on the day.

The Bank of England raised its key interest rate by 50 basis points to 5%, seeking to curb the highest inflation in any major economy.

Consequently, both benchmarks, Brent Crude and WTI experienced a significant decline of 3.34% and 3.88% respectively on the previous day.

This hike is significantly larger than anticipated, as the majority of market participants were only expecting a 25bps increase.

Moreover, Fed officials estimated rates would rise to 5.6% by the end of the year, according to their median projection, implying two additional quarter-point hikes following surprisingly persistent inflation and labor-market strength.

Tina Teng, an analyst at CMC Markets said, "Recession fears mount again following central banks' rate hikes and a hawkish Fed," as Reuters reported.

"Energy traders are worried that the Fed and friends might cripple economic growth in the second half of the year," said Edward Moya, an analyst at OANDA.

The market is now waiting for the release of Purchasing Managers Indexes (PMIs) from around the world on Friday for a view of manufacturing activity and demand trends.

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