Oil falls below $90 per barrel as rising interest rates dampen demand prospects

Oil prices extended falls on Thursday after the U.S. Federal Reserve struck a more hawkish tone than anticipated, heightening concerns that rising interest rates and inflation may weigh on demand for petroleum in the coming months.

As anticipated, the Fed raised interest rates by 75 basis points on Wednesday, causing crude oil prices to drop. The likelihood of a tighter monetary policy rattled the markets in response to Fed Chair Jerome Powell's declaration that more aggressive measures were required to contain inflation.

Powell claimed that the Federal Reserve is now willing to risk economic and labor market weakness to combat inflation. To battle excessive inflation, it is believed that other major central banks would raise interest rates, with the Bank of England preparing to act later today.

Brent oil futures traded in London slid 0.4% to $89.56 per barrel on Thursday, while U.S. West Texas Intermediate WTI crude futures declined 0.3% to $82.72 per barrel as of 20:39 ET (00:39 GMT).

It is projected that the combination of rising interest rates and growing inflation will have a negative effect on crude oil demand, hence retarding economic growth. In addition to reducing customers' purchasing power, high loan rates have a negative impact on fuel demand.

The dollar's strength, which touched a 20-year high on Thursday, has also impacted foreign crude demand this year by driving up import prices.

These fears have pulled oil prices below the annual highs hit at the commencement of the Russia-Ukraine war. In tandem with the White House's gradual withdrawal from the Strategic Petroleum Reserve this year, government efforts to decrease fuel prices have flooded the market with oil.

Notwithstanding, an escalation in the Russia-Ukraine war might further diminish Russian crude supply, foreshadowing a possible price hike. This week, President Vladimir Putin announced a partial mobilization of soldiers in order to "annex" portions of Ukraine.

Due to Russia's initial invasion of Ukraine, oil prices surged in February, as major European and Asian consumers relied heavily on Moscow for supplies. Due to supply limits, oil prices may climb, especially as the conflict escalates.

A harsh European winter is also expected to raise crude oil demand as more countries switch to heating oil.