Crude Oil Prices Drop 1% on US Economic Worries

May 30, 2024
crude oil prices

By Adedapo Adesanya 

Crude oil prices eased by about 1 per cent on Wednesday on worries over weak US fuel demand and economic data that could cause the US Federal Reserve to keep interest rates higher for longer.

Brent futures fell by 62 cents or 0.7 per cent to settle at $83.60 per barrel and the US West Texas Intermediate (WIT) crude declined by 60 cents or 0.8 per cent to $79.23 per barrel.

US consumer confidence unexpectedly improved in May after deteriorating for three straight months amid optimism about the labour market in the world’s largest economy. However, worries about inflation persisted and many households expected higher interest rates over the next year.

Worries about US gasoline (petrol) demand have kept prices near a recent two-month low, cutting gasoline and 321-crack spreads, which measure refining profit margins, to their lowest levels since February.

Market analysts noted that the weak demand is keeping supplies near normal levels as bullish seasonal diminishes.

Meanwhile, investors are waiting for the release on Friday of the US personal consumption expenditures (PCE) price index report for April. The PCE, which is the US Federal Reserve’s preferred inflation barometer, is expected to hold steady monthly.

Expectations for the timing of rate cuts have faltered with policymakers wary of inflation, which is nowhere near the 2 per cent target.

High interest rates used to tackle lingering inflation can weigh on economic growth and reduce oil demand.

Traders and analysts also expect the Organisation of the Petroleum Exporting Countries (OPEC) and its allies including Russia, known as OPEC+, to keep voluntary production cuts of about 2.2 million barrels per day in place at its meeting on Sunday, June 2.

The International Monetary Fund said China, the world’s second-biggest economy is set to grow 5 per cent this year after a “strong” first quarter, upgrading its earlier forecast of a 4.6 per cent expansion. The IMF, however, said it expects slower growth in China in the years ahead.

Heightened tensions in the Middle East also held back the crude price decline as Israel sent tanks on raids into Rafah and predicted its war on Iran-backed Hamas militants in Gaza would continue all year. The Iran-aligned Houthis in Yemen, meanwhile, launched attacks on six ships in three different seas.

Adedapo Adesanya

Adedapo Adesanya is a journalist, polymath, and connoisseur of everything art. When he is not writing, he has his nose buried in one of the many books or articles he has bookmarked or simply listening to good music with a bottle of beer or wine. He supports the greatest club in the world, Manchester United F.C.

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