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oil and gasFebruary 2, 2023

Oil prices drop amid concerns about further interest rate hike

Oil prices fell in afternoon trading on Tuesday as concerns about further interest rate increases and a stronger dollar offset optimism over an improving global economic outlook.

Brent, the benchmark for two thirds of the world’s oil, was 1.37 per cent lower at $83.74 a barrel at 1.22pm Qatar time while West Texas Intermediate, the gauge that tracks US crude, was down 1.54 percent at $76.70 a barrel.

Brent settled about 2 per cent lower at $84.90 on Monday while WTI fell 2.23 per cent to close at $77.90.

“The latest news on the macro front is not bad, at all. The Chinese reopening is now well reflected through the first set of economic data,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“And the cherry on top, the IMF [International Monetary Fund] raised its growth forecast for this year … this is the kind of news that the energy markets normally cheer, but not this time, apparently.”

The IMF marginally raised its growth forecast to 2.9 per cent for 2023 and said easing inflation and China’s reopening pointed to resilience in the global economy.

China’s output is projected to accelerate to 5.2 per cent, compared with a previous 4.4 per cent forecast, while India is expected to outpace the world’s economies with a 6.1 per cent expansion in 2023, after growing 6.8 per cent last year.

The fund expects oil prices to fall by about 16 per cent this year. The average assumed price of oil based on futures markets as of November 29, 2022, is $81.13 in 2023 and $75.36 in 2024, the fund said.

Energy traders will be closely following Wednesday’s Opec+ meeting, where delegates are widely expected to recommend continuing the group’s existing oil outputpolicy. The US Federal Reserve, which will start its first policy meeting of this year later on Tuesday, is expected to announce a smaller interest rate increase amid cooling inflation rates in the world’s largest economy.