Oil prices fell further this week, reaching their lowest level in two weeks, as investors became more concerned that the better-than-expected economic data released from the U.S. will mean more aggressive interest rate increases by central banks, pressuring economic growth and fuel demand.
This week, brent crude posted its biggest one-day loss for seven weeks at $80.60 per barrel as minutes from the latest U.S. Federal Reserve meeting revealed that a majority of Fed officials agreed that the risks of high inflation remained a “key factor” in shaping monetary policy and warranted continued rate hikes until it was controlled.
“While better U.S. economic data should mean better oil demand, the concern is that this forces the Fed to overtighten monetary policy to bring inflation under control,” said UBS analyst Giovanni Staunovo. “This is also supporting the U.S. dollar, which is not of help for oil.”
UBS analysts have also stated that, while a stronger dollar remains a near-term headwind for crude, they expect lower Russian production and China's reopening to tighten the oil market and support prices.
As we head into the weekend, the focus also shifts to severe snowstorms forecast across the eastern part of the United States, which may cause widespread disruption.
The U.S. dollar, meanwhile, has strengthened against a basket of other currencies in recent weeks, making oil more expensive for holders of other currencies. While some economic reports have shown a positive outlook for the U.S., others have raised concerns for the world's biggest oil consumer. Recent data reveals that sales of existing homes in the U.S. plummeted in January to their lowest levels since October 2010.
Data from the UK showed a fairly mundane start to the year with house prices remaining fairly static and Lloyds predicting that UK house prices will fall by 7% by the end of 2023. Of course, this remains speculation. The UK housing market has proved fairly robust over recent years and potential signs of a UK recession becoming much shallower than first predicted may help to keep house prices static.
