Oil prices fell slightly in early Asian trade on Friday after a sharp tumble in the prior session as fears of rising interest rates and worsening economic conditions wiped out all gains made this week.

Crude markets were nursing a 4% tumble from Thursday after the Bank of England hiked rates by a bigger-than-expected margin, while Federal Reserve Chair Jerome Powell reiterated the central bank’s plan for more rate hikes.

The losses saw crude largely reverse all gains made earlier in the week, and saw markets trade past data showing some improvement in U.S. fuel demand.

Brent oil futures fell 0.2% to $74.08 a barrel, while West Texas Intermediate crude futures fell 0.2% to $69.36 a barrel by 21:35 ET (01:35 GMT). Both contracts were now set to lose over 3% each this week.

Fed, inflation in focus after BoE hike rattles oil markets

A bigger-than-expected rate hike from the BoE came after data showed British inflation unexpectedly grew through May. The trend is likely to attract more hikes from the central bank, with markets raising their expectations for the BoE’s terminal rate this year.

The U.S. dollar also strengthened on Thursday after the Fed’s Powell and other members of the central bank said that at least two more interest rate hikes were warranted, given high inflation levels in the country.

The comments, coupled with the shock BoE decision, fed into fears that economic conditions will worsen amid rising interest rates, denting oil demand this year.

Fed members James Bullard, Ralph Bostic, and Loretta Mester are set to speak later on Friday, and potentially offer more cues on the path of U.S. interest rates.

Markets are widely pricing in an at least 25 basis point hike by the Fed in July.

Concerns over high inflation in the rest of the globe were also pushed up by stronger-than-expected Japanese inflation data, with a core indicator hitting a 42-year high.

This saw oil markets largely disregard data showing a drop in U.S. inventories, coupled with strong fuel demand in the country.

U.S. inventories shrink, fuel demand at strongest since December

Data on Thursday showed that U.S. crude inventories shrank far more than expected in the week to June 16, while total fuel products supplied hit their highest level since December 2022.

The readings indicated that U.S. fuel demand was heating up in tandem with the travel-heavy summer season, potentially heralding tighter oil supplies in the coming weeks.

This, coupled with lower Saudi Arabian production, could tighten global oil supplies this year. But the notion was largely offset by fears of worsening demand.