Oil prices dip on demand woes from interest rate hikes

Oil prices edged lower on Friday as a hawkish stance from the U.S. central bank spurred fears of slowing demand, outweighing supply concerns stemming from Russia’s fuel export ban.

Brent futures were down 32 cents, or 0.4%, at $92.95 a barrel by 12:25 p.m. ET (1625 GMT). U.S. West Texas Intermediate crude (WTI) futures fell 23 cents, or 0.3%, to $89.41 a barrel.

For the week, both benchmarks were set for a decline exceeding 1%. In the previous three weeks, they rose more than 10% on concerns about tight supply.

“Investors are anticipating a slack in demand coming into October as refineries go into maintenance and as higher interest rate is going to further pressure markets,” said Dennis Kissler, senior vice president of trading at BOK Financial.

U.S. Federal Reserve officials warned of further rate hikes. Higher interest rates increase borrowing costs, which could slow economic growth and reduce oil demand.

Meanwhile, markets worried about Russia’s temporary ban on exports of gasoline and diesel to most countries would tighten supplies.

Russia’s Transneft suspended deliveries of diesel to the key Baltic and Black Sea terminals of Primorsk and Novorossiysk on Friday, state media agency Tass said.

The ban will “bring new uncertainty into an already tight global refined product supply picture and the prospect that the impacted countries will be seeking to bid up cargoes from alternative suppliers,” RBC said in a note.

Russian wholesale gasoline prices were down nearly 10% and diesel down 7.5% on Friday on the St. Petersburg International Mercantile Exchange.

The euro zone economy is likely to contract in the third quarter, according to Purchasing Managers’ Index (PMI) data released on Friday.

A contraction in UK economic activity deepened further in September compared to August, additional PMI data showed.

U.S. offline refinery capacity was expected to reach 1.4 million barrels per day (bpd) this week according to IIR Energy versus 800,000 bpd offline last week.
Source: Reuters (Reporting by Arathy Somasekhar in Houston and Nicole Jao in New York; Robert Harvey, Yuka Obayashi in Tokyo and Emily Chow in Singapore; editing by Jan Harvey, Jason Neely and David Gregorio)