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Business News/ Markets / Commodities/  Oil slides for third straight session on high US Fed rate outlook, weaker demand; Brent sticks to $82/bbl
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Oil slides for third straight session on high US Fed rate outlook, weaker demand; Brent sticks to $82/bbl

Brent still sticks to its $82 per barrel-mark. Lower interest rates reduce borrowing costs, freeing up funds that could boost economic growth and oil demand.

Brent crude futures were last down 78 cents, or 0.94 per cent, at $82.10 a barrel (Image: Pixabay)Premium
Brent crude futures were last down 78 cents, or 0.94 per cent, at $82.10 a barrel (Image: Pixabay)

Crude oil prices declined nearly one per cent on Wednesday, May 22, retreating for a third straight day on expectations that US interest rate cuts might be delayed due to sustained inflation, a move that could weaken the oil demand.

Brent crude futures were down 78 cents, or 0.94 per cent, at $82.10 a barrel, while US West Texas Intermediate crude (WTI) was down 74 cents, or 0.94 per cent, to $78.92. Both benchmarks settled about one per cent lower on Tuesday. On the domestic front, crude oil futures declined 1.28 per cent to 6,484 per barrel on the multi-commodity exchange (MCX).

Also Read: Oil prices drop over $1 after US inflation, Fed outlook hurts consumer demand; Brent at $82/bbl

Why is crude oil under pressure?

-US Fed policymakers said on Tuesday the US central bank should wait several more months to ensure that inflation is back on track toward its two per cent target before cutting rates. Investors are awaiting minutes from the Fed's last policy meeting later on Wednesday.

-The Federal Open Market Committee (FOMC) minutes will be scrutinized for the Fed's assessment of the high Q1 inflation and clues on the timing and extent of potential interest rate cuts in 2024. Lower interest rates reduce borrowing costs, freeing up funds that could boost economic growth and the demand for oil.

-The US Energy Information Administration on Wednesday said that US crude stocks rose by 1.8 million barrels during the week ended May 17.  However, gasoline stocks, which fell more than expected, signaled strong implied demand and pared back some losses earlier in the day.

-Analysts said that crude markets have been pressured by weakening fundamentals, with the Organisation of Petroleum Exporting Countries (OPEC) likely extending production cuts at their June meeting to support prices

-Physical crude markets have been weakening. In another sign that concern of tight prompt supply is easing, the premium of Brent's first-month contract over the second, known as backwardation, is close to its lowest since January.

Also Read: US inflation resumes downward trend, eases to 0.3% in April; core CPI cools for first time in 6 months

Where are prices headed?

Pranav Mer, Vice President, EBG - Commodity & Currency Research, JM Financial Services Ltd said that oil prices failed to sustain above $80 per barrel earlier in the week. In the session ahead, focus will be on the beginning of pick summer driving season in US next week. ‘’Technically, trend remains down till below 6,600/ 6,700, downside prices may test 6,420-6,350,'' said Mer.

Analysts said that the premium on prompt Brent contracts has narrowed to a marginal 10 cents per barrels. ‘’The loosening of the physical markets might encourage the OPEC+ to extend the 2 mbpd of supply cuts into 2H 2024, when they meet on 1st June,'' said Kaynat Chainwala – Senior Manager, Commodities Research – Kotak Securities.

‘’The risk premium associated with Middle East tensions has also decreased, as oil supplies have remained undisrupted. All eyes are now focused on the upcoming OPEC+ meeting on June 1, where key oil producers are expected to extend output curbs to avoid a worldwide glut and boost prices,'' said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

‘’We expect crude oil prices to remain volatile. Crude oil has support at $77.50–76.80 and resistance at $78.80-79.50. In INR, crude oil has support at 6,510-6,440 and resistance at 6,630-6,700,'' added Kalantri.

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ABOUT THE AUTHOR
Nikita Prasad
Nikita covers business news and has been producing news on digital platforms since 2018. She writes on economy, policy, markets, commodities, industry. Her core areas of interests include infrastructure, energy, oil and gas, railways, and transport/mobility. She has worked for business news channels like Moneycontrol, NDTV Profit, and Financial Express in the past. If you have story ideas/pitches/reports or quotes/views to share, reach her at nikita.prasad@htdigital.in.
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Published: 22 May 2024, 10:55 PM IST
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