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Crude oil prices resulted in another weekly lossafter the U.S. Federal Reserve signaled onceagain it had no immediate plans to start cutting rates, in turn impacting consumerconfidence and therefore potential oil demand.
The Energy Information Administration’s weekly oilinventory report also helped depress prices as it estimated a considerablebuild in inventories, implying weaker demand—just like the Fed’s policy oninterest rates.
With rates at the highest in over two decades,concern about U.S. oil demand is quite legitimate. Add to this there has beenvirtually no oil supply disruption in the Middle East from the Israel-Hamaswar, and you get quite a limited upward potential for oil prices.
This potential is currently being realized,with Brentcrude slipping below $84 per barrel this week, fromclose to $90 less than a month ago. West Texas Intermediate declined from over $85 in early April to below $80 per barrel thisweek.
Whether prices would continue to decline isuncertain, however. Besides all the bearish news, this week also produced aReuters report citingunnamed OPEC officials who said that the cartel and its partners in OPEC+ couldextend their production cuts beyond the first half of the year.
The report recalls that the total withheld oilproduction in OPEC+ amounts to 5.86 million barrels daily, of which the 2.2million bpd referred to as the voluntary production cuts, are only part. Theother part, 3.66 million bpd, will remain in effect until the end of 2024.
"We think there's a good chance that OPEC+will extend beyond June - but we aren't yet putting a firm view because wedon't think they've actually got into the real period of discussion anddecision-making," Energy Aspects analyst Richard Bronze told Reutersearlier this week.
Indeed, an extension would make the most sense inthe current price environment when any news of additional supply would crashprices, especially as the geopolitical premium fizzles out.
Thegeopolitical premium is being quickly priced out as Israel appears more willingto accept a hostage deal,” Robert Rennie, head of commodity and carbon strategyat Westpac Banking Corp, told Bloomberg. “It’s hard to see amajor push above the $90-$95 region for Brent, and the break below $85 suggestsa major top is now in place.”
Furthergood news for fuel card users as prices drop in the region of 1 pence per litrefor next week.
