Oil Prices Continue to Slide Amid Weak Fuel Demand and Fed Comments
In a concerning turn of events, oil prices saw further declines on Monday as signs of weak fuel demand emerged and comments from US Federal Reserve officials cast doubt on potential interest rate cuts. The world’s biggest economy could face a slowdown, impacting fuel demand globally, according to Reuters.
Brent crude futures dropped by 0.3 percent to $82.54 a barrel, while US West Texas Intermediate crude futures fell to $78.07 a barrel, down 0.2 percent.
Market Shifts Focus from Middle East Conflicts to Economic Outlook
Auckland-based independent analyst Tina Teng noted that oil markets seemed unfazed by recent Middle East conflicts and were now paying closer attention to the world economic outlook. China’s producer price index contraction in April and sluggish business demand, along with slowdown signals from recent US economic data, have contributed to this shift.
US Interest Rate Debate Impacts Oil Prices
Friday saw both benchmarks settling approximately $1 lower as Fed officials debated the sufficiency of US interest rates to bring inflation back to 2 percent. This debate offset gains from earlier in the week related to the Israel-Gaza conflict.
Expectations for US Central Bank Policy Support Dollar
Analysts anticipate that the US central bank will maintain its policy rate at the current level for a longer period, which could bolster the dollar. A stronger greenback typically makes dollar-denominated oil more costly for investors holding other currencies.
Weak Demand Signals and Refinery Struggles Impact Oil Prices
ANZ analysts highlighted signs of weak demand, noting increases in US gasoline and distillate inventories ahead of the US driving season. Refineries worldwide are facing challenges due to declining profits for diesel, driven by increased supplies from new refineries and reduced demand from mild weather and slow economic activity.
OPEC+ Supply Cut Expectations Provide Support
Despite these challenges, expectations that OPEC and allies could extend supply cuts into the second half of the year have supported the market. Iraq, the second-largest OPEC producer, has reaffirmed its commitment to voluntary oil production cuts and cooperation with member countries to stabilize global oil markets.
US Oil Rig Count Drops to Lowest Level Since November
In the US, the oil rig count fell to 496 last week, reaching its lowest point since November, according to Baker Hughes’ weekly report on Friday. This decline reflects ongoing shifts in the global oil market landscape.