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Worries Over Additional Rate Spikes Lowered Oil Prices And Diminished Fuel Demand

Prices of oil have lowered compared to the previous gains as investors have taken margins on fears that additional hikes in interest rates by the central banks could have a negative impact on financial growth and add to the overall economy while hurting fuel demand worldwide.

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Brent crude futures and West Texas Intermediate both fell from their previous highs. The shift in the market was caused by the fear of interest rate hikes in the U.S. as well as Europe, which would lead to reduced oil demand.

The top leaders of central banks across the world have reassured that, according to them, additional measures in policy tightening are required to help calm down the aggressive inflation. However, they believe that this can be done without causing recessions.

At the recent central bank meeting, additional hikes were not ruled out by the U.S. Federal Reserve, and on the other hand, European Central Bank Solidified the projection for 9th consecutive increase in eurozone rates, which will take place in July.

With the already existing concerns, the pressure from the yearly profits of Chinese industrial firms led to an extension offer double-digit decline since the sluggish demand in the first five months stressed margins. This sparked concern as China is the second biggest consumer of oil in the world.

Brent crude followed a six-month backwardation which is a pricing structure where the higher trading contracts are the sooner loading ones compared to the later loading ones. This structure has been at the lowest level since December, hinting that there is a higher demand for instantaneous delivery.

This could indicate that there is an expectation for immediate fuel demand to stay strong in the U.S.; however, the global economy is expected to follow a downtrend by the second half of the current year and, in turn, cause a decline in oil demand.

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According to the article by Procurement Resource, the expectations for a further hike in interest rates by the U.S. and Europe have sparked concerns of an approaching economic slowdown which has led to a decline in oil demand. Both Brent futures and WTI have fallen from their previous highs causing global concerns. Other factors at play that are directly impacting the situation have been mentioned in the article.