Key Points
- Oil prices fell due to high US interest rate concerns and unexpected inventory build.
- Iran’s President’s death had minimal impact, but China’s stimulus uncertainty added to market caution.
- Brent futures fell 0.7% to $81.35/barrel, and WTI futures dropped 0.8% to $76.98/barrel.
On Thursday, oil prices fell during Asian trade due to persistent concerns about prolonged high US interest rates and an unexpected build in oil inventories. These factors have significantly influenced market sentiment, with traders remaining cautious about the future trajectory of oil prices. High-interest rate anticipation in the US sparks fears of reduced economic activity, potentially lowering oil demand. Additionally, an unexpected increase in oil inventories has exacerbated concerns about oversupply, further pressuring prices.
Geopolitical Stability: Iran & China’s Stimulus Plans
Traders have also been pricing out risk premiums, influenced by the recent death of Iran’s President, which has had little immediate impact on geopolitical conditions in the Middle East. This development has somewhat reassured markets, reducing the geopolitical risk premium influencing oil prices. However, cooling optimism over China’s stimulus measures has added another layer of uncertainty. Investors eagerly await China’s implementation of new stimulus plans, crucial for supporting global oil demand.
Oil Futures Decline: Brent at $81.35, WTI at $76.98
Brent oil futures, set to expire in July, experienced a 0.7% decline, settling at $81.35 per barrel. Similarly, West Texas Intermediate (WTI) crude futures fell by 0.8%, reaching $76.98 per barrel. These fluctuations reflect the broader market sentiment influenced by various economic and geopolitical factors. The decline in futures prices underscores the market’s cautious stance amid ongoing uncertainties about demand and supply dynamics.
High US Rates: Fed’s Inflation Target at 2%
The US Federal Reserve’s recent minutes from the late April meeting revealed waning confidence among policymakers that inflation was easing as expected, potentially necessitating prolonged high interest rates. Comments from Federal Reserve officials have highlighted the scenario of sustained high rates, contingent on achieving the central bank’s 2% annual inflation target. This stance has boosted the dollar, pressuring oil prices, and raised concerns about a significant cooling of global economic activity in 2024, which could impact oil demand.
Unexpected Inventory Build: US Oil Futures Concerns
On Wednesday, data revealed an unexpected build in US oil inventories for the week ending May 17. Distillate inventories grew, and gasoline inventories saw a smaller-than-expected draw. This data cast a dour tone ahead of the Memorial Weekend holiday, typically associated with increased fuel demand. Concerns about sticky inflation, cooling retail spending, and high interest rates have raised fears that US fuel demand could be hampered this year, adding to the bearish sentiment in the oil market.
