May 30 2024: Oil prices eased on Thursday as strong U.S. economic activity suggested that borrowing costs might remain higher for an extended period, potentially dampening demand.
Ahead of the U.S. crude oil stockpiles report due later in the day, Brent futures dropped by 26 cents, or 0.3%, to $83.34 per barrel as of 0630 GMT. Similarly, U.S. West Texas Intermediate (WTI) crude fell by 23 cents, or 0.3%, to $79.00 per barrel.
Both benchmarks are on track for monthly losses, with Brent futures set to decline by over 5% from the previous month and WTI poised to drop by more than 3%.
“The broader risk-off environment has put downward pressure on oil prices, despite a larger-than-expected drawdown in U.S. crude inventories from recent API data,” said Yeap Jun Rong, a market strategist at IG.
According to market sources citing American Petroleum Institute (API) figures on Wednesday, U.S. crude oil and gasoline inventories decreased last week while distillate inventories increased.
The API data indicated that crude stocks fell by 6.49 million barrels in the week ending May 24. Gasoline inventories decreased by 452,000 barrels, while distillate inventories rose by 2.045 million barrels.
Analysts had predicted that U.S. energy firms would withdraw 1.9 million barrels of crude from storage, while adding 0.4 million barrels of distillates and 1 million barrels of gasoline.
The U.S. Energy Information Administration (EIA) is set to release its data later on Thursday.
Rising global oil inventories in April due to weak fuel demand could support the case for OPEC+ producers, including the Organization of the Petroleum Exporting Countries (OPEC) and allies like Russia, to maintain supply cuts when they meet on June 2, according to OPEC+ delegates and analysts.
“A significant factor for oil prices in the near future could be the upcoming OPEC+ meeting this weekend, where OPEC members might extend their current production cuts potentially until the end of the third quarter to support prices,” added Yeap.
Oil markets have faced pressure due to expectations that the Federal Reserve will keep interest rates higher for longer, with Brent settling at its lowest level in over three months on May 23.
U.S. economic activity continued to expand from early April through mid-May, but businesses grew more pessimistic about the future while inflation increased modestly, according to a Federal Reserve survey.
Higher borrowing costs tend to restrict funds and consumption, negatively impacting crude demand and prices. The Fed is now expected to cut rates in September at the earliest, contrary to the June start initially anticipated by markets at the beginning of the year.
