Oil prices falls below US$110 as U.S. Fed turns hawkish

• West Texas Intermediate fell 6.8 percent to US$109.56, the largest daily decline since March.
• Friday, he reaffirmed that the Fed’s primary objective is to return inflation to its 2 percent target.
• The price of crude oil is still up more than fifty percent this year.

Oil prices dropped the most in three months as Federal Reserve Chair Jerome Powell reaffirmed his resolve to combat the hottest inflation in decades through more aggressive rate hikes.

West Texas Intermediate fell 6.8 percent to US$109.56, the largest daily decline since March. This week, Powell endorsed for the first time publicly raising interest rates well into restrictive territory, a strategy that has frequently led to economic contraction and could reduce energy consumption. Friday, he reaffirmed that the Fed’s primary objective is to return inflation to its 2 percent target.

Read More: Fed’s Christopher Waller backs one more big interest rate hike in July

According to Edward Moya, senior market analyst at Oanda, further technical selling could target the psychological US$100 per barrel level if the current trend continues.

“Once this move lower is complete, oil should stabilise and trade comfortably above the US$100 a barrel level as potential disruptions from either further sanctions on Russia oil or hurricane season will keep supplies at dangerously low levels,” he said.

Concerns that rising interest rates and a slowdown in economic growth will destroy demand have gripped the market, but long-term supplies still appear tight, according to market participants.

“I don’t think the selloff will continue as we have major supply shortfalls such as in non-OPEC non-US production and OPEC spare capacity; fundamentals for energy remain bullish and we recommend buying the dips,” Christyan Malek JPMorgan Global Head of Energy Strategy.

The invasion of Ukraine by Russia has exacerbated global price increases and pushed up the cost of everything from food to fuel. The national average for retail gasoline prices in the United States recently surpassed $5 per gallon. The White House is considering limiting fuel exports in an effort to ease pump prices.

Read More: As Inflation Continues to Rise & Recession Fears Loom, YouGov poll

As a result of resurgent demand and disrupted trade flows caused by Russia’s invasion of Ukraine, the price of crude oil is still up more than fifty percent this year. Analysts at JPMorgan Chase & Co., including Natasha Kaneva, wrote in a report that all commodity price swings have become more extreme as market liquidity has decreased, and if secondary sanctions are imposed by the West on crude, the oil prices could soar.