Oil demand concerns rise after US Fed decides to hold interest rates steady

The front-month ICE Brent contract lost $2.89/bbl to settle at $83.44/bbl on Wednesday, after the US Fed maintained interest rates at 5.25-5.50% at its two-day policy meeting.

PHOTO: US Federal Reserve's headquarters in Washington D.C., US. Getty Images

The US Federal Reserve’s (Fed) chairman Jerome Powell reiterated expectations of ‘higher-for-longer’ interest rates yesterday, as the US central bank is yet to achieve its 2% inflation target.

Inflation in the US is “still too high,” and the progress in bringing down inflationary pressures is “not assured,” Powell said. “We are fully committed to returning inflation to our 2 percent goal,” he added.

This news has sparked demand concerns in the global oil market and weighed on Brent’s price gains as higher interest rates can often dampen demand by increasing the cost of commodities like oil for non-dollar holders.

“The fear of a more hawkish Fed and even a delay of interest rates…. could slow the demand for oil,” Price Futures Group’s senior market analyst Phil Flynn remarked. “The rate differentials between the US dollar and other commodities could keep oil [Brent] prices under pressure,” he added.

By Aparupa Mazumder 

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