Oil Prices Down on Rekindled Demand Worries

May 23, 2024
oil prices fall

By Adedapo Adesanya 

Oil prices fell more than 1 per cent on Wednesday, retreating for a third straight day, as US Federal Reserve officials rekindled worries about oil demand when they indicated interest rate cuts might be deferred due to sustained inflation.

Brent was sold at $81.90 per barrel after it lost 98 cents or 1.18 per cent and the US West Texas Intermediate (WTI) was traded at $77.57 per barrel after losing $1.09 or 1.39 per cent.

The US Federal Reserve officials at their last policy meeting indicated inflation could take longer to ease than previously thought, minutes of the Federal Reserve’s May policy-setting meeting, released on Wednesday, showed.

Lower interest rates reduce borrowing costs, freeing up funds that could boost economic growth and oil demand.

The US central bank has no intention of cutting these in the immediately observable future, waiting for inflation to come down closer to its target of 2 per cent. The bank’s officials made this clear this week, as they advised the ultimate decision-makers to refrain from rate cuts for at least another few months, according to Reuters.

Meanwhile, the US Energy Information Administration (EIA) ported an estimated inventory increase of 1.8 million barrels for the week to May 17 compared with a draw of 2.5 million barrels for the previous week that pushed benchmarks higher last week as it came after an API estimate that also pointed to a draw and it was the second weekly draw in a row, suggesting demand picking up.

A day before the EIA released its report, the American Petroleum Institute (API) estimated sizeable builds in crude and fuels for the week to May 17, with oil adding 2.48 million barrels and gasoline stocks rising by 2 million barrels.

According to the EIA, gasoline (petrol) inventories in the world’s largest consumer, shed 900,000 barrels in the week to May 17, with production averaging 10 million barrels daily.

Crude markets have been pressured by weakening fundamentals, such as falling spot Brent over futures and softer refinery margins.

Market analysts noted that this will likely force the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) to extend production cuts at its June meeting to support prices.

OPEC+ has implemented a series of output cuts since late 2022 amid rising output from the US and other non-member producers, and worries over demand as major economies grapple with high interest rates.

Oil prices have found support this year from the conflict in the Middle East, although concern about economic growth and high interest rates has weighed.

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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