24.09.202201:14 Forex Analysis & Reviews: Oil prices are rapidly falling

Oil continues to fall in price and ends the fourth consecutive week in the red. The rise in interest rates by central banks around the world is canceling out the remnant of optimism as it brings the already inevitable decline of the global economy closer.

In recent days, the Federal Reserve, the Bank of England, as well as the central banks of Switzerland and Norway have announced an increase in rates. And in this all-propagating mood, quotes tend to the very bottom, despite the emerging shortage of raw materials on the market.

The cost of November futures for Brent crude on the London ICE Futures exchange by 11:22 London time was $88.69 per barrel, and by 17:50 fell to $86.19, which is 4.72% lower than the closing price of Thursday's session.

The price of futures for WTI oil for November in electronic trading on the New York Mercantile Exchange fell by 5.53%, to $78.87 per barrel.

In order to prevent prices from sliding to all-time lows, OPEC countries may well call on countries to significantly reduce production. It is unprofitable for members of the bloc if the prices for oil are too low, as this will definitely affect their budgets. This was admitted by Nigerian Oil Minister Timipre Sylva.

While oil is under heavy pressure from a stronger US dollar, the US currency is making dollar-denominated commodities more expensive for holders of other currencies.

Recall that on Wednesday the Fed nevertheless raised the key interest rate by 75 basis points and hinted at further tightening of monetary policy in the country.

Fed Chairman Jerome Powell confidently stated that the Federal Open Market Committee (FOMC) intends to bring inflation back to 2% despite all the existing risks. So, until the consumer price index returns to the coveted figure, the central bank is unlikely to change its rhetoric.

Increasingly, there are rumors among experts that the US central bank will repeat a significant increase in the rate. That is, the likelihood of a rate hike in the range of 0.75% to 1% is becoming more and more likely. If this does happen, then the key rate in the US will exceed 4%, and the dollar will automatically become the most attractive asset in the foreign exchange market.

A bullish rally in the debt market will also elevate the dollar among major contenders. In particular, even now the yield on 10-year Treasuries is 3.7% and is at the highest level since February 2011. And the yield on 2-year Treasuries has already reached 4.15% - the highest rate not seen since 2007.

But the dollar is not the only thing that pulls down oil quotes. The growth of oil reserves in the US is also a significant factor in the decline. According to the Energy Information Administration, oil inventories in the United States increased by 1.14 million barrels last week. At the same time, gasoline inventories increased by 1.57 million barrels, although analysts had expected a decrease of 0.4 million barrels.

Rising inventories are a reflection of falling demand. This is probably why investors have doubts about the prospects for a recovery in business activity in the US.