Oil prices recorded their steepest declines in the last eight weeks, dropping over 7% during the week ending May 5, as markets braced for weak demand following the US Fed’s decision to raise interest rates for the tenth time in just over a year and on signs of another banking crisis in the US.
International benchmark Brent crude was trading at $74.45 per barrel at 15.28 p.m. (1228 GMT) on Friday, posting a 7% fall from the Monday session that opened at $80.11 a barrel.
The American benchmark West Texas Intermediate (WTI) registered at $70.51 per barrel at the same time on Friday, decreasing 8% relative to the opening price of $76.66 a barrel on Monday.
The Fed raised interest rates by 25 basis points on Wednesday, marking the tenth hike in just over a year and raising the target range for federal funds to 5% to 5.25%, the highest since August 2007.
While Fed Chair Jerome Powell said in his post-meeting press conference that inflation has ‘moderated somewhat’ since mid-2022, he noted that ‘pressures run high’ and that the decision to pause rate hikes was ‘not yet made.’
He stated that the Fed faces a number of challenges, including the ongoing financial crisis in the US as well as rising interest rates to combat inflation and provide a soft landing.
The country has just resolved one of its banking failures, with US regulators closing the troubled US-based First Republic Bank on Monday and with JPMorgan Chase set to acquire its assets. However, signs of another failure have sparked market concern, with PacWest shares falling 50.6% on Thursday as the bank negotiates a bailout with potential partners and investors.
Concerns about dwindling oil demand were heightened after China reported weaker-than-expected manufacturing activity, casting doubt on the country’s post-COVID economic recovery.
The markets also struggled with supply-side woes after Iran’s Islamic Revolutionary Guards Corps (IRGC) confirmed the seizure of a foreign oil tanker in the Strait of Hormuz.
Wednesday’s incident comes a week after the Iranian army’s naval division seized a Marshal Islands-flagged ‘transgressor’ tanker and directed it to the coastal waters of Iran in the Sea of Oman following an encounter with an Iranian vessel.
