Oil Prices Dip as Fed Discusses Tightening Interest Rates
In a turbulent market, oil prices continued to slide for the fourth consecutive session on Thursday. The decline came after the minutes of a US Federal Reserve meeting revealed discussions about potentially tightening interest rates if inflation remains high, posing a threat to oil demand, as reported by Reuters.
Market Figures
At 9:51 a.m. Saudi time, Brent crude futures dropped by 20 cents, reaching $81.70 per barrel. Meanwhile, US West Texas Intermediate crude futures were down by 29 cents, standing at $77.28. Both benchmarks experienced a decline of over 1 percent on Wednesday.
Fed’s Response to Inflation
The minutes released on Wednesday from the Federal Reserve’s latest policy meeting revealed that the central bank’s reaction to persistent inflation may involve maintaining the current policy rate. However, there were also talks about potential further interest rate hikes.
According to the minutes, “Various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.”
Market Pressures
Higher interest rates can lead to increased borrowing costs, which could constrain funds available for economic growth and oil demand in the US, the world’s largest oil consumer.
Additionally, US crude stocks saw a rise of 1.8 million barrels last week, according to the Energy Information Administration, contrary to an estimated 2.5 million-barrel draw.
Globally, physical crude markets are facing pressure from weak refinery demand and oversupply.
Outlook and Expectations
Despite Russia exceeding its OPEC+ production quota in April, Citi analysts anticipate that the production cuts will be maintained through the third quarter of this year. The group is set to meet on June 1 to discuss further actions.
Citi also maintains its projection of Brent crude averaging $86 a barrel in the second quarter of 2024.