May 23 2024: Oil prices declined for the fourth consecutive session on Thursday after the minutes from the latest U.S. Federal Reserve meeting revealed discussions about further tightening interest rates if inflation remains persistent. Such a move could potentially dampen oil demand.
Key Points
Brent Crude Futures: Fell 20 cents, or 0.2%, to $81.70 a barrel at 0651 GMT.
West Texas Intermediate (WTI) Futures: Dropped 29 cents, or 0.4%, to $77.28.
Wednesday’s Decline: Both benchmarks fell by more than 1%.
Federal Reserve’s Stance
The minutes from the Federal Reserve’s last policy meeting indicated that the central bank might maintain its policy rate but is also considering further hikes if inflation risks materialize. This stance raises borrowing costs, which can hinder economic growth and reduce oil demand in the world’s largest oil-consuming nation.
Market Factors
U.S. Crude Stocks: Increased by 1.8 million barrels last week, contrary to expectations of a 2.5 million-barrel draw, according to the Energy Information Administration.
Global Crude Markets: Pressured by weak refinery demand and ample supply. Physical markets have been affected by weaker data, including rising oil inventories, tepid demand, and refinery margin weakness, which increases the risk of refinery run cuts.
OPEC+ Dynamics
Russia’s Production: Exceeded its OPEC+ production quota in April for “technical reasons.” Russia plans to present a compensation plan to the OPEC Secretariat.
OPEC+ Production Cuts: Expected to be maintained through the third quarter of this year, as per Citi analysts.
Outlook
Citi continues to forecast that Brent will average $86 a barrel in the second quarter of 2024. However, current market softness, driven by rising oil inventories and weak demand, presents challenges.
In summary, oil prices are under pressure due to the potential for further U.S. interest rate hikes and increased crude inventories, combined with weak refinery demand and ample supply. The market will closely watch upcoming OPEC+ decisions and further economic data to gauge future trends.
