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Oil Prices Tank 3% As Contract Rollover Nears

Source the Ghana Report

Oil prices slid by 3% early on Friday, erasing the gains from earlier this week, as the contracts are set for rollover and central banks say much needs to be done to curb inflation despite the less aggressive hike rates this week.

As of 9:37 a.m. ET on Friday, the front-month U.S. benchmark contract WTI Crude was trading down 3.35% at $73.45. The international benchmark, Brent Crude, was down 3.42% on the day to $78.42, slipping below $80 per barrel again after having reached $82 per barrel earlier this week.

Brent at $78 per barrel is the lowest level in a year, lower than before the Russian invasion of Ukraine.

Inventory builds across the board in the United States also weighed on oil prices this week, as well as the policy statements from the Fed and other major central banks such as the European Central Bank (EBC) and the Bank of England, which said the taming of the inflation – which may have already peaked – needs continued monetary policy tightening and the rates at the end of the tightening cycle could end up higher than initially estimated.

The Fed raised by half a percentage point the federal funds rate on Thursday, ending the several consecutive 0.75 percentage point increases, for now. The Bank of England and the ECB also raised rates by 0.50 percentage points, with the UK rate hike being the ninth consecutive increase since December 2021.

The ECB said on Thursday that “interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target.”

Oil reversed some of the strong gains seen earlier in the week, “after the Fed’s hawkish tilt was followed by a slew of other G10 central banks, especially the ECB which highlighted the struggle to get inflation under control,” Saxo Bank said on Friday.

“Given the current focus on recession potentially hurting demand, a supply side struggle may not positively impact prices until the second quarter, and with that in mind, the price of Brent may settle into a range below $90 until then,” the bank’s strategy team added.

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