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WTI is preparing for a drop below $81, as the aggressive Fed reduces growth forecasts

Alina Haynes

Sep 22, 2022 14:45

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Futures for West Texas Intermediate (WTI) on the New York Mercantile Exchange (NYMEX) are exhibiting a feeble pullback after hitting a low of $82.28 in the early European session. Wednesday saw a sharp decline in the price of black gold after it failed to sustain above the $86.00 crucial resistance level. After the Federal Reserve (Fed) raised interest rates by 75 basis points (bps) for the third time in a row, oil prices were offered aggressively.


As a result of the Fed's tightening actions, institutions have reduced their growth forecasts, causing investors to sell their long positions in black gold. If Fed chair Jerome Powell had just announced a rate hike, the effect on oil prices would have been smaller. The increase in terminal rates was consistent with market forecasts. However, the prescription of the strategic plan to combat the escalating inflation dampened market sentiment.


By the end of 2023, Fed chair Jerome Powell anticipates that interest rates will reach 4.6%. The guideline has significantly increased from 3.8%. Also, the unemployment rate is estimated to be 4.1% higher. Big tasks need big sacrifices, and the rate of interest rate increases will cause severe damage to economic progress. Eventually, a decrease in economic growth forecasts will result in a prolonged decline in oil demand.


The Energy Information Administration's (EIA) estimate of an increase in oil stockpiles adds fuel to the flames. The EIA recorded a 1.142 percent increase in oil reserves. Undoubtedly, the data remains below expectations, but a third straight increase in inventories signals a precipitous decrease in oil demand.