Oil Weakens on Global Demand Downturn, Easing Rate Cut Hopes

By Adedapo Adesanya

Oil depreciated on Thursday as a result of pressure from weaker global demand, rising inventories, and fading hopes for a quick cut in interest rates in the world’s largest economy, the United States.

Consequently, Brent crude futures hit the lowest since early March at $83.67 per barrel after losing 23 cents or 0.3 per cent, and the US West Texas Intermediate (WTI) crude futures fell by 5 cents to settle at $78.95 a barrel.

Oil investors have grown worried about a possible economic slowdown in the US, as the war between Israel and Hamas continues without any major hit to Middle Eastern oil supplies.

On Wednesday, oil prices fell more than 3 per cent after the US government reported a surprise jump in crude oil stocks and the US Federal Reserves left interest rates unchanged citing stubborn inflation.

US commercial crude inventories, which exclude the strategic petroleum reserves, surged by 7.3 million barrels to 461 million barrels total last week, data from the Energy Information Administration (EIA) showed.

Pressure also came from a stronger Dollar as the Federal Reserve kept interest rates higher for longer. This could also make oil more expensive for customers, putting pressure on demand. The US central bank held interest rates steady on Wednesday, citing a “lack of further progress” in bringing inflation down to its 2 per cent target.

A slump in worldwide diesel demand is also feeding concerns about slowing oil demand growth in big economies. Gasoil stocks, which include diesel, rose by more than 3 per cent in Europe’s Amsterdam-Rotterdam-Antwerp refining and storage hub during the week.

Supporting prices, the Organisation of Petroleum Exporting Countries and allies (OPEC+) could extend output cuts if demand fails to pick up.

OPEC’s current production cuts are set to run through the end of June, although a June 1 OPEC+ meeting will determine whether the 22-man alliance should extend the cuts further or whether they should begin the gradual process of unwinding them.

Traders were watching whether lower oil prices would spur the US government to replenish strategic reserves.