Oil prices slumped on Friday on growing concerns that the US Federal Reserve's plans to continue with interest rate hikes could lead to an economic downturn.
Brent, the global benchmark for two-thirds of the world's oil, fell 5.58 per cent to settle at $113.10 a barrel, its lowest level in four weeks.
West Texas Intermediate, the gauge that tracks US crude, settled 6.83 per cent lower to $109.60 a barrel.
The Fed raised its policy rate by a larger-than-expected three-quarters of a percentage point on Wednesday, its third interest rate increase in three months and the biggest since 1994, and signalled that more rate increases are coming.
The move to stem rising US consumer prices comes as global financial markets wobble amid rising energy prices and high inflation.
Federal Reserve chairperson Jerome Powell also reiterated on Friday that rate increases will continue in order to curb inflation, which reached a new 40-year high in May. “My colleagues and I are acutely focused on returning inflation to our 2 per cent objective,” he said at a Fed conference on Friday.
The World Bank last week warned of rising stagflation as it slashed its growth forecast for the global economy for the second time this year as the Ukraine war exacerbates the slowdown from the Covid-19 pandemic and adds to inflationary pressures.
The lender lowered its growth estimate for 2022 to 2.9 per cent, from the 3.2 per cent projection it issued in April, as the escalating geopolitical crisis threatens to lead to a “protracted period of feeble growth and elevated inflation”, the multilateral lender said.
In April, the International Monetary Fund also lowered its 2022 growth forecast to 3.6 per cent, from its previous estimate of 4.4 per cent in January.
However, the outlook for oil prices remains on the upside as supply concerns continue to dominate the market, according to analysts.
Brent is up about 45 per cent since the start of this year as developed economies recover from the pandemic, Russia's military offensive continues into its fourth month and the EU presses forward with banning most of Russian oil imports by the end of this year.
"Despite the correction over the last week or so, the market remains extremely tight and the price risks still remain tilted to the upside," Craig Erlam, senior market analyst at Oanda, said.
"With Opec+ now reportedly missing output targets by 2.7 million barrels per day and setting unachievable targets for the summer, that gap will widen. The pressure in the market isn’t going to ease any time soon."
US commercial crude oil inventories (excluding those in the strategic petroleum reserve) increased by 2 million barrels in the week ended June 10, and at 418.7 million barrels was about 14 per cent below the five year average for this time of year, according to the latest report from the Energy Information Administration.
This week, Opec maintained its forecast that world oil demand will exceed pre-pandemic levels in 2022, but said that the Russia-Ukraine war, developments related to the pandemic and inflationary pressures posed a considerable risk.
The crude oil exporters group kept its oil demand forecast for this year at 3.36 million bpd, unchanged from the previous month's forecast.