Oil Market Extends Loss on US Demand Worries

May 24, 2024
crude oil market

By Adedapo Adesanya

The oil market fell for a fourth consecutive session on Thursday, still gripped by the prospect of the market seeing cuts in the US interest rate, raising worries around demand growth in the world’s biggest oil market.

Brent crude futures settled lower by 54 cents or 0.7 per cent to trade at $81.36 a barrel, and US West Texas Intermediate (WTI) crude futures fell by 70 cents or 0.9 per cent to $76.87 a barrel.

On Wednesday, minutes from the US Federal Reserve’s latest policy meeting showed policymakers remain doubtful if current interest rates are high enough to tame stubborn inflation, which is still not within the 2 per cent target.

High interest rates increase the cost of borrowing, which can slow down economic activity and dampen oil demand.

This happened as the S&P Global data showed that US business activity accelerated this month, but manufacturers also reported a surge in prices for a range of inputs, suggesting a pickup in goods inflation in the months ahead.

Also weighing on the market, US crude stocks rose by 1.8 million barrels last week, according to the Energy Information Administration (EIA), compared with an estimated draw of 2.5 million barrels.

However, the EIA reported US gasoline demand at its highest since November, providing some support for energy markets ahead of the Memorial Day holiday weekend, which is considered the start of the US summer driving season.

US gasoline (petrol) consumption makes up around 9 per cent of global oil demand, and this could provide support in the short term.

Investors are also looking ahead to the June 1 meeting of the Organisation of Petroleum Exporting Countries and its allies, together called OPEC+, where the group will decide its output policy.

Oil prices still look rangebound in the low $80s, at least until next week’s OPEC+ meeting on June 1, which is expected to decide how to proceed with the current cuts of around 2.2 million barrels per day in the second half of the year.

The recent move lower in prices prompted analysts to bet that the OPEC+ group would fully roll over the current cuts.

Russia said it exceeded its OPEC+ production quota in April for “technical reasons” and will soon present to the OPEC Secretariat its plan to compensate for the error, the Russian Energy Ministry said on Wednesday.

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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