Oil prices declined for the third consecutive session as market participants anticipate that the Federal Reserve will maintain higher interest rates in the United States for an extended period. This is in response to persistent inflation, which could potentially impact fuel consumption in the world’s largest oil consumer.
As of 0650 GMT, Brent crude futures dropped by 0.9% or 71 cents to $82.17 per barrel, while U.S. West Texas Intermediate crude (WTI) futures slipped by 0.9% or 73 cents to $77.93 per barrel. On Tuesday, oil prices settled approximately 1% lower.
On Tuesday, Federal Reserve policymakers suggested that the central bank should wait for a few more months to ensure that inflation is truly on track towards its targeted 2% before considering any interest rate cuts. The prospect of higher borrowing costs has the potential to dampen economic growth and put pressure on oil demand.
According to sources citing figures from the American Petroleum Institute (API), U.S. crude oil and gasoline inventories increased last week, while distillates decreased. This comes as retail gasoline prices have fallen for the fourth consecutive week ahead of the Memorial Day holiday, which marks the start of the peak summer driving season in the U.S. Diesel prices, an important refined product for both the industrial and transportation sectors, have also declined. Investors are eagerly anticipating the release of minutes from the Federal Reserve’s latest policy meeting, as well as the weekly U.S. oil inventory data from the Energy Information Administration (EIA), both scheduled for Wednesday. Analysts from ANZ noted that the FOMC minutes will be closely examined for the Fed’s assessment of Q1 inflation and any hints regarding potential interest rate cuts in 2024. ANZ further stated that the current approach seems to be a “wait and see” approach based on the available data.
Amid a more positive economic outlook, the euro zone is on the verge of announcing a rate cut on June 6. In an interview aired on Tuesday, European Central Bank President Christine Lagarde expressed her strong confidence in the euro zone’s ability to maintain control over inflation.