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Text of the US-Iran Memorandum of Understanding: Following the signing of the memorandum of understanding, the United States will soon grant waivers for Iranian oil exports.On June 18th, the Bank of England held its fourth consecutive meeting, keeping interest rates unchanged at 3.75%, believing that a rate hike was premature given the unclear strength of rising inflationary pressures. The Monetary Policy Committee voted 7-2 to maintain the rate, in line with market expectations. Monetary Policy Committee member Green and Chief Economist Peale advocated a 25 basis point hike. Most other members largely maintained Governor Baileys stance of "actively maintaining the status quo." Bailey argued that this stance itself constituted an effective tightening compared to market expectations of a rate cut before the conflict. Both Peale and Green stated that a rate hike now would help curb household expectations of future inflation. According to the banks quarterly survey, household inflation expectations have risen to their highest level since at least 2009. The preliminary ceasefire agreement reached between the US and Iran is expected to reopen the Strait of Hormuz and lower oil prices. Given the UKs heavy reliance on imported natural gas, maintaining the agreement would be beneficial to the UK. However, Governor Bailey stated, "Regardless of what the future holds, the higher energy prices of the past four months already indicate that some inflationary pressures are building." The Bank of England expects inflation to rise above 3.25% in the fourth quarter, up from 2.8% in May, but down from the 3.6% to 3.7% forecast in April under two of the three main scenarios. The outlook for economic growth is also slightly more optimistic, with potential growth projected at 0.2% per quarter, up from 0.1% in the previous forecast.Text of the US-Iran Memorandum of Understanding: Iran will maintain the status quo of its nuclear program.The yield on UK two-year government bonds rose 7 basis points to 4.22%.Traders maintained their bets on Bank of England interest rates, expecting a 35 basis point increase this year.

Oil prices decrease as speculators believe that Federal Reserve rate hikes will reduce demand

Charlie Brooks

Jun 24, 2022 12:04

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Oil prices fell by more than $2 a barrel on Thursday after Federal Reserve Chair Jerome Powell's latest comments fueled worries that rising interest rates in the United States could hinder economic growth.


Brent oil futures settled at $1100.05 a barrel, a decrease of $1.69 or 1.5%. Futures contracts for U.S. West Texas Intermediate (WTI) crude settled at $104.27 a barrel, representing a loss of $1.92, or 1.8 percent.


Powell indicated that the Fed's objective of managing inflation was "unconditional" and that the strength of the job market was unsustainable, statements that fanned fears of more rate hikes.


Investors have lowered their exposure to risky assets as they assess whether inflation-fighting central banks' interest rate hikes may trigger a worldwide recession.


"If the United States and the rest of the world enter a recession, you might have a significant impact on demand," said Houston energy analyst Andrew Lipow.


In addition, Robert Yawger, director of energy futures at Mizuho in New York, feels that the high price of gasoline may be beginning to reduce demand.


"This has entered the conversation," Yawger said, adding that he felt fuel costs still had the ability to rise. AAA states that the current average retail price for a gallon of gasoline in the United States is $4.94, approximately 10 cents less than its all-time high.


According to a source with knowledge of the discussions, major U.S. oil refiners and Energy Secretary Jennifer Granholm left an emergency meeting with no concrete proposals to reduce prices, but with a commitment to work together.


Yawger noted that the most current estimates from the American Petroleum Institute suggested a rise in crude and gasoline inventories in the United States last week, which also weighed on pricing.


Official weekly estimates of U.S. oil inventories were scheduled to be released on Thursday, but technical challenges would delay the release until next week, according to the U.S. Energy Information Administration, which did not offer an exact date.


In an effort to cut oil prices and inflation, OPEC and allied producing nations, including Russia, will likely adhere to a plan for quick output increases, according to sources.


At its last meeting on June 2, the group known as OPEC+ agreed to increase production by 648,000 barrels per day in July, or 7 percent of global demand, and by the same amount in August, an increase from the initial plan to increase production by 432,000 barrels per day per month for three months until September.


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