DTN Oil

WASHINGTON (DTN) -- With the U.S. Dollar Index printing new 20-year highs, oil futures nearest delivery on the New York Mercantile Exchange pared gains in the afternoon session Thursday amid investors' growing concerns that stubborn inflation will keep central banks raising interest rates until the United States and the rest of the global economy tumbles into a recession, wiping out a chunk of demand gains from the post-pandemic recovery.

U.S. Federal Reserve and other central banks are quickly tightening credit to fight historically high inflation even as three of the world's main economies -- the U.S., Europe and China -- are sputtering. Higher mortgage rates are cooling the U.S. housing market, energy shortages are hurting European factory output, and recurring coronavirus lockdowns are hobbling Chinese businesses. Against this backdrop, central banks are rushing to jack up interest rates to cool off inflation that has not yet shown signs of abating.

The Bank of England on Thursday morning raised its benchmark lending rate by 50 basis points in a seventh consecutive hike this year to slow a relentless rise in consumer prices. Higher rates come as the United Kingdom faces an energy crisis, recession forecasts and a set of economic reforms under new Prime Minister Liz Truss.

The policy action follows similar rate increases from the central banks in Norway and Switzerland among others where consumer prices accelerated at the fastest clip since the creation of the European Union. In parts of Central and Eastern Europe, inflation recorded a double-digit rise, with Estonia recording a 25.2% claim in consumer prices in August, followed by Latvia at 21.4% and Hungary with 18.6% gain from a year earlier.

On Wednesday, the Federal Open Market Committee delivered a 75-basis-points hike for the third consecutive meeting this year and admitted there will be below-trend growth for a period. In addition, Fed officials cut growth projections, raised their unemployment outlook and repeatedly spoke of the painful slowdown that's needed to curb price pressures running at the highest levels since the 1980s. "Higher interest rates, slower growth and a softening labor market are all painful for the public that we serve, but they're not as painful as failing to restore price stability and having to come back and do it down the road again," noted Fed Chairman Jerome Powell in the press conference following rate decision.

Goldman Sachs economists have since raised their forecast for the Federal Reserve's pace of interest rate hikes and Powell's hawkish signal. The investment bank now expects rate hikes of 75 basis points in November, 50 basis points in December and 25 basis points in February for a peak funds rate of 4.5%-4.75% compared with 4%-4.25% before, economists led by Jan Hatzius said in a research note.

At settlement, the U.S. Dollar Index, which has an inverse relationship with West Texas Intermediate, advanced 0.6% against the basket of foreign currencies to 111.105 after hitting 111.360 on Wednesday -- the highest trade since May 2002.

WTI futures for November delivery advanced to $83.49 barrel (bbl) settlement, up $0.55, while the front-month Brent contract gained to $90.46 bbl, up $0.63. NYMEX ULSD October futures spiked 7.77 cents to $3.4115 gallon, and the front-month RBOB contract gained 2.92 cents to $2.5157 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com