Oil declines for the third consecutive day due to the prospect of ‘higher for longer’ interest rates in the US
On Wednesday, oil prices dipped by over 1%, marking a third consecutive retreat. This drop comes amidst expectations that the Federal Reserve might maintain higher interest rates in the U.S. for an extended period due to persistent inflation, potentially affecting fuel consumption in the world’s largest market.
Additionally, market sources, referring to American Petroleum Institute (API) data released on Tuesday, noted a rise in U.S. crude oil and gasoline inventories last week, contrary to analyst forecasts of a decline.
Brent crude futures slipped by $1.03, or 1.2%, to $81.85 per barrel, while U.S. West Texas Intermediate crude (WTI) fell by $1.25, or 1.6%, to $77.41 .
Tamas Varga of oil broker PVM commented, “The view on the fundamental outlook remains grim,” adding that uncertainty surrounds the timing of a potential Fed rate adjustment.
Tuesday saw oil settling approximately 1% lower.
There’s been a weakening trend in physical crude markets, further evidenced by the decreasing premium of Brent’s front-month contract over the second, known as backwardation, reaching levels close to those seen in January.
Fed policymakers suggested on Tuesday that the central bank should wait a few more months to confirm if inflation is indeed on track to meet its 2% target before considering interest rate adjustments.
Rising borrowing costs can hinder economic expansion and dampen oil demand.
Investors are eagerly awaiting the release of minutes from the Fed’s recent policy meeting, as well as the latest official U.S. oil inventory figures from the Energy Information Administration (EIA) later on Wednesday, following the API data.
Analysts highlighted the significance of the Federal Open Market Committee (FOMC) minutes, anticipating insights into the Fed’s assessment of inflation in the turbulent first quarter and indications regarding the timing and magnitude of potential interest rate changes in 2024.
In the UK, April’s inflation figures showed a smaller-than-expected decline, with a key core measure barely shifting. This prompted investors to reconsider expectations of a rate cut next month.
