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Business News/ Markets / Commodities/  Crude oil prices on track for sharp weekly decline amid Fed's hawkish stance, surge in US stockpiles
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Crude oil prices on track for sharp weekly decline amid Fed's hawkish stance, surge in US stockpiles

Brent and WTI prices declined due to demand concerns and US interest rates. Fed's cautious stance on rate cuts affected prices. US stockpiles increased, while Russia exceeded production quota. OPEC+ meeting in June likely to extend output cuts to balance global supply.

The stronger-than-expected U.S. business activity also reduced bets on Federal Reserve interest rate cuts this year, which weighed on crude prices. (Pixabay)Premium
The stronger-than-expected U.S. business activity also reduced bets on Federal Reserve interest rate cuts this year, which weighed on crude prices. (Pixabay)

Crude oil prices have been highly volatile this week, with various factors causing traders to remain concerned about demand. Notably, prices have been on a downward trend since the start of April and are on track to hit a three-month low.

This week, both Brent and WTI have ended four trading sessions in the red, losing nearly 3.11 and 3.40%, respectively. Brent crude futures have dropped from $83.98 per barrel to $81.36, while WTI has fallen from $79.58 to $76.87 per barrel.

Also Read: Emkay projects Brent oil price range at $83 to $92 per barrel in the short term

Traders remain concerned that prolonged high interest rates in the US will hurt the economic outlook and demand for energy. 

Hawkish Fed tone

In the previous trading session, crude oil prices dropped over 0.65% following the release of the Federal Reserve meeting minutes, which indicated a lack of confidence among policymakers regarding imminent interest rate cuts.

The minutes showed that while policymakers viewed current policy as "well positioned," some expressed readiness to tighten policy in the event of inflation spikes. Additionally, it was noted that achieving greater confidence in inflation reaching the targeted 2% level would take longer than previously expected.

Also Read: India's Russian oil imports rise to nine-month high in April on shipments

Atlanta Fed President Raphael Bostic on Thursday reiterated the chorus from officials this week that the central bank needs to be patient on its next move as there is still considerable upward pressure on prices.

Further, the stronger-than-expected U.S. business activity also reduced bets on Federal Reserve interest rate cuts this year, which weighed on crude prices. 

S&P Global reported that its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, jumped to 54.4 this month, the highest level since April 2022, up from a final reading of 51.3 in April.

This resilience is making it difficult for inflation to cool, which helps explain why the Fed is intent on keeping rates higher for longer.

Also Read: As Russian discounts fall, Indian refiners join hands to negotiate better terms

Additionally, data on Thursday showed that the number of Americans filing new claims for unemployment benefits fell last week, indicating underlying strength in the labor market that should continue to support the economy.

Furthermore, apprehensions regarding demand and the rising US stockpiles have also added pressure to prices. According to the latest EIA report, US crude inventories have surged, with Cushing, Oklahoma's storage hub, hitting its highest level since July.

Meanwhile, US gasoline demand surged to its highest levels since November, contributing to the stabilisation of oil prices as the US summer driving season approaches.

Eyes on OPEC+ meeting

On the production front, Russia said on Wednesday that it exceeded its OPEC+ production quota in April for "technical reasons."  The Russian Energy Ministry stated that the country maintained production below the OPEC+ quotas through the first quarter of 2024. The April overproduction was attributed to "technical particularities of reducing production by a significant amount."

In mid-May, Iraq’s oil minister stated that any extension to output cuts is a matter for OPEC, and the country will adhere to whatever the group decides.

Also Read: Gold pulls back from record highs, drops by 2,256 over 3 sessions

Earlier this month, the United Arab Emirates' main oil company, Abu Dhabi National Oil Co., announced it had increased its production capacity. OPEC is currently restraining output to prevent a global surplus and support prices. However, Abu Dhabi's eagerness to deploy new investments in production capacity has occasionally led to clashes with OPEC's leader, Saudi Arabia.

Looking ahead, the upcoming OPEC+ meeting scheduled for June 1 is expected to see key oil producers extend output cuts to prevent a global oversupply and bolster prices.

 

 

Disclaimer: We advise investors to check with certified experts before making any investment decisions.

 

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Published: 24 May 2024, 11:56 AM IST
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