Oil prices dropped on Thursday for the fourth consecutive session, fueled by concerns over the possibility of sustained higher interest rates in the United States, which could potentially hinder economic growth and reduce demand for oil, especially in the largest oil-consuming nation globally.
Brent crude oil futures fell by 45 cents, or 0.6%, to $81.45 a barrel, while U.S. West Texas Intermediate (WTI) crude futures were down by 57 cents, or 0.7%, at $77 a barrel by 11:50 am ET (1550 GMT).
Market Reaction to US Fed’s Position
Data from S&P Global revealed an acceleration in U.S. business activity this month. However, manufacturers also reported a significant increase in prices for various inputs, indicating a potential rise in goods inflation in the coming months. The release of minutes from the U.S. Federal Reserve’s recent policy meeting showed that policymakers remain uncertain about whether current interest rates are sufficient to control persistent inflation, further contributing to market apprehension. Higher interest rates typically result in increased borrowing costs, which can slow down economic activity and curb demand for oil.
Additionally, the Energy Information Administration reported a build-up of 1.8 million barrels in U.S. crude stocks last week, contrary to the estimated draw of 2.5 million barrels. However, there was some positive news as well, with U.S. gasoline demand reaching its highest level since November, providing a slight boost to energy markets. Analyst Bob Yawger from Mizuho noted that while the gasoline report was promising, it’s essential to observe whether this performance can be sustained in the future.
OPEC Meeting Anticipation
Investors are now focusing on the upcoming June 1 meeting of the Organization of Petroleum Exporting Countries (OPEC) and its allies. At this meeting, the group will decide on its output policy.
Russia announced that it exceeded its OPEC production quota in April due to technical reasons and will soon present its plan to compensate for this oversight to the OPEC Secretariat, according to the Russian Energy Ministry’s statement on Wednesday.
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