Why are oil prices declining rapidly? Oil prices have decreased for the fourth straight day, driven by concerns that potential hikes in US borrowing costs could negatively impact economic growth and oil demand.
Why are oil prices declining rapidly
The decline in prices is primarily influenced by the Federal Reserve’s commitment to controlling inflation, which might lead to further interest rate increases.
As of early Thursday, Brent crude futures fell by 0.3%, or 27 cents, to $81.63 a barrel. Similarly, U.S. West Texas Intermediate (WTI) crude futures decreased by 0.5%, or 35 cents, to $77.14 a barrel.
Both benchmarks had already seen more than a 1% drop on Wednesday.
Federal Reserve’s Inflation Strategy:
Minutes from the Federal Reserve’s latest policy meeting, released on Wednesday, revealed that the central bank is prepared to maintain its current policy rate.
However, there was also discussion among officials about the possibility of further rate hikes if inflation persists.
Also read: US jobs development alerts hard inflation clash ahead
The minutes indicated a willingness among some participants to tighten policy further should inflation risks necessitate such action.
US Crude Stockpile Increase:
The Energy Information Administration reported a surprising increase in US crude inventories, which rose by 1.8 million barrels last week.
This was contrary to the expected 2.5-million-barrel draw, suggesting a discrepancy in anticipated demand or supply.
Global Supply and Demand Dynamics:
On a global scale, physical crude markets have been under pressure due to subdued refinery demand and abundant supply.
Russia’s recent announcement that it exceeded its OPEC+ production quota in April for “technical reasons” has also added to the market’s concerns.
The Russian Energy Ministry has stated that it will present a plan to the OPEC Secretariat to compensate for this overproduction.
OPEC+ Production Outlook:
Despite these challenges, Citi Research maintains its forecast that OPEC+, which includes OPEC members and allies led by Russia, will uphold its production cuts through the third quarter of this year.
Citi expects Brent crude to average $86 a barrel in the second quarter of 2024.
