Expected interest rate hikes cap crude gains

Front-month ICE Brent has slipped $0.64/bbl lower on the day, to $92.04/bbl at 09.00 GMT.

PHOTO: The Federal Reserve headquarters in Washington DC. Founded in 1913, the Fed is the central bank of the US. Getty Images

Upward pressure:

Saudi Aramco chief executive Amin Nasser has outlined a bleak outlook on the future of the energy crisis, saying he is "seriously concerned" that the rebound in global demand will eliminate any spare oil production capacity.

In August, OPEC+ oil production trailed 3.6 million b/d below the group's target, reports Argus Media. OPEC countries produced 1.39 million b/d less than their target, and non-OPEC allies 2.19 million b/d less.

Russian President Vladimir Putin has announced a partial military mobilisation for Russian citizens. The move is set to escalate the war in Ukraine and has raised concerns that oil and gas supply could tighten further. Putin's announcement comes just a day after four Russian-controlled regions in Ukraine said they would hold referendums on whether to formally become a part of Russia.

During this week's UN General Assembly, the US said it did not expect to see a breakthrough in reviving the 2015 Iran nuclear deal, reducing the chances of Iranian oil barrels returning to the international market. Washington is prepared to trade compliance for compliance, added White House National Security Adviser Jake Sullivan.

Meanwhile, US President Joe Biden and Iranian President Ebrahim Raisi are both due to address the UN General Assembly today.

Downward pressure:

The US dollar jumped to a new 20-year high, propped up by prospects of an aggressive 75-100 basis point interest rate hike, and Putin’s warning of a “strong response to a West engaging in nuclear blackmail”.

Investors are on alert for higher borrowing costs as central banks in the US, UK and Japan are due to make announcements on monetary policies this week. The British pound slumped to a fresh 37-year low against the US dollar last week. Analysts expect the Bank of England to raise its key interest rate by another 75 basis points - the largest in 33 years.

Saxo Bank's head of forex strategy John Hardy told CNBC to "shield our eyes" from what will happen to the British pound if the Bank of England does not opt for a 75 basis point hike. BNP Paribas' chief European economist Paul Hollingsworth wrote in a note to clients that a 75 basis point hike is more compelling than 50 basis points.

By Konica Bhatt

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