Oil extends weekly loss to 5% as speculation of more aggressive rate hikes from the Fed stokes demand worries

• Oil prices dropped Friday on demand concerns with the prospect of further and more aggressive Fed rate hikes.
• WTI and Brent oil prices were lower for a fourth straight session.

Oil prices sank Friday, stretching losses for the week, as investors considered the possibility the Federal Reserve will return to more aggressive rate hikes as inflationary pressures have been slow to decompress.

Both the US and international crude oil benchmarks were on course to log four straight declines. West Texas Intermediate crude, the US benchmark, fell 3% during Friday's session. It hit an intraday low of $75.71, on track for a loss of more than 5% for the week.

Brent crude oil lost nearly 3% during Friday's trade, and with an intraday low of $82.29, the international benchmark was veering toward a loss of almost 5%. Dollar-denominated oil prices were also feeling the weight of an increase in the greenback's value.

Oil prices have slumped this week in part as US inflation reports showed a monthly rise in consumer and wholesale prices, stoking expectations the Fed may need to push interest rates even further. Higher borrowing costs for businesses and consumers could hurt demand for oil and other fuel products.

A fall in oil demand could take place during a time when oil in global markets is sufficiently stockpiled. The International Energy Agency last month said the oil balance was "well-supplied" at the start of the year although supply could tighten if Western sanctions drive down Russian oil exports.

Meanwhile, the prospect of further Fed rate hikes has underpinned the dollar's advance. The US Dollar Index on Friday was around its highest in a month, hovering above 104. It was also on track to rise for a third straight week. Its year-to-date gain has been modest, at 0.7%.

The Federal Reserve downshifted the size of its rate hikes to 50 basis points in December and to 25 basis points earlier this month. But St. Louis Fed President James Bullard on Thursday said he wouldn't rule out policymakers returning to a rate-hike size of 50 basis points at their March meeting as their inflation fight continues.

Also, Cleveland Fed President Loretta Mester said Thursday that she "saw a compelling economic case for a 50-basis-point increase" at the February meeting and bigger rate hikes are not out of the question.

"The US dollar has enjoyed a stellar week," Fawad Razaqzada, market analyst at Forex.com, said in a Friday note. "Fed's Mester and Bullard were characteristically hawkish on Thursday and floated the idea of more aggressive 50bp rate hikes, although we don't necessarily think that will be required."

For oil, "one major upside risk to prices remains China and its recovery from the transition to living with COVID. Russian output remains another, following reports that its output will fall by half a million barrels per day from March as a result of the price cap," Craig Erlam, senior market analyst at Oanda, said in a note.

"There are downside risks, of course, not least a slower global economy as a result of much higher interest rates. But for now, traders seem content with [oil] remaining in the range."