Oil prices fell more than 1% on Wednesday, retreating for a third straight day on expectations that U.S. interest rate cuts might be deferred due to sustained inflation, potentially affecting demand in the world’s largest oil user.
The market also slipped as U.S. crude oil and gasoline inventories rose last week, according to market sources citing American Petroleum Institute (API) figures on Tuesday. Analysts expected them to decline.
Brent crude futures were down 87 cents, or 1.1%, at $82.01 a barrel, while U.S. West Texas Intermediate crude (WTI) was down 81 cents, or 1%, to $77.85 at 1255 GMT. Both benchmarks settled about 1% lower on Tuesday.
“Crude prices are pressured by loosening fundamentals, with OPEC+ likely extending production cuts at their June meeting to support prices,” said Saxo‘s Head of Commodity Strategy, Ole Hansen.
Physical crude markets have been weakening and, 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. “The view on the fundamental outlook remains grim,” said Tamas Varga of oil broker PVM, adding: “The timing of a Fed rate cut is ambivalent at best”. Fed policymakers said on Tuesday the U.S. central bank should wait several more months to ensure that inflation really is back on track towards its 2% target before cutting rates. Higher borrowing costs can slow economic growth and pressure oil demand.
Investors are awaiting minutes from the Fed’s last policy meeting and, following the API data, the latest official U.S. oil inventory figures from the Energy Information Administration (EIA) due later on Wednesday.
“The Federal Open Market Committee (FOMC) minutes will be scrutinised for the Fed’s assessment of bumpy Q1 inflation and clues on the timing and extent of potential interest rate cuts in 2024,” ANZ analysts said in a report.