Crude oil price: will the rate hikes and inflation dampen the demand further in the coming months?

Crude oil price on Thursday
Crude oil price on Thursday

Jacob Rees-Mogg, the new Business Secretary of the United Kingdom, made it clear today that the moratorium on fracking has been lifted, paving the way for larger explosions in the process of extracting trapped gas in order to ease the supply crisis. 

With the moratorium gone, the fracking firms will be allowed to cause explosions beyond 0.5 on Richter Scale - up to 2.5. Mr Rees- Mogg went on to say that without the ban being lifted, no fracking would take place.

Understandably, the environment groups across the country will be up in arms against the move. Their protests, however, will be overshadowed by the concerns of millions of people, currently battered on many fronts due to the energy crisis and rising inflation.

Credit: NYU publishing

The British government is fully aware of the concerns of the local residents in the fracking areas, though: it is known that fracking could potentially cause 'mini earthquakes' and the former plans to offer the locals with gas at discounted prices as a partial way of compensation for the distress caused during the fracking. 

The new government under Liz Truss, the prime minister, promised billions of pounds to reduce the energy bills, both for consumers and businesses, She admitted that the real solution stemmed from the UK becoming self-sufficient in fossil fuels rather than relying on foreign sources.

To achieve the goal, in addition to fracking, the British government plans to issue licenses to energy firms for the exploration of North Sea oil and gas as well; the last license was issued in 2020, before the suspension took effect.

The price of crude oil, meanwhile, fell again over the concerns involving the universal demand. The EIA, US Energy Information Administration, released its weekly report on Wednesday that showed a significant crude build during the last week - the second successive weekly build.

EIA US crude stocks
US crude stocks - EIA

According to the EIA, there was a crude build of 1.1 million barrels for the week ending on September 16; for the week ending on September 9, the figure was staggering 8.8 million barrels. 

On economic front, meanwhile, the bad news keeps grabbing the headlines that will slowdown the demand of crude oil: the Fed, for instance, raised the interest rate by 75 base points on Wednesday - the third straight hike; in the UK, meanwhile, the Bank of England raised the interest rate by 0.5 percentage points, making it the highest rate in fourteen years.

The rate hike will further dampen the mood of the consumers and the demand of the crude oil may suffer further in due course. At present, the only factor that appears to be keeping the price of crude oil within the current bracket is the high gas prices.

Since the war in Ukraine shows no sign of coming to a peaceful end, it is highly unlikely that the price of LNG will come down anytime soon to make a dent in the current crude oil prices.

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