The US Federal Reserve’s decision to hold its benchmark interest rate steady weighed on crude oil as prices slipped to around $92 per barrel on September 21.
While holding off from raising interests, the Fed signalled the likelihood of one more hike before the end of 2023 and fewer rate cuts next year. Interest rate hikes typically have a bearish impact on crude oil prices as consumer demand takes a hit with an increase in rates. The global economy, especially that of the US, plays an important role in determining the direction of crude oil prices.
Benchmark Brent crude was trading at $94 per barrel on September 19.
Crude oil prices have been on an upward trend since July after Saudi Arabia—the world’s largest oil producer—announced production cuts. This comes against the backdrop of falling prices that were hovering around $75 per barrel in 2023 until June in a low-demand environment.
However, prices gained momentum in July on the apprehension of supply tightness after the Saudi supply cuts. On September 5, the kingdom announced an extension of the 1 million barrels per day (bpd) production cut until December 2023, while Russia too extended its voluntary export cut of 300,000 bpd until the end of the year. Crude oil prices surged to a 10-month high on September 15 to $94 per barrel after the announcements.
Other bullish factors, such as a recent boost in China’s economy, which could potentially increase oil demand, also led to a surge in crude prices. China is the largest consumer of energy in the world. Additionally, positive signs from the US economy supported prices too.
In May, the Organisation of the Petroleum Exporting Countries and its allies, commonly known as OPEC+, had cut oil production by 1.6 million bpd for 2023.
In the May cuts, Saudi Arabia had reduced supply by 500,000 bpd, while Iraq had cut over 200,000 bpd until the end of the year. Russia, which is part of OPEC+, had announced an extension of its production cut of 50,000 bpd till the end of 2023.
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