Oil Prices Continue Slide Amid Weak Demand Signals and Fed Comments

On Monday, oil prices continued their downward trend, influenced by indications of weak fuel demand and comments from U.S. Federal Reserve officials that tempered expectations of interest rate cuts, potentially slowing growth and impacting fuel demand in the world’s largest economy.

Brent crude futures dipped by 25 cents, or 0.3%, reaching $82.54 a barrel by 0505 GMT, while U.S. West Texas Intermediate crude futures stood at $78.07 a barrel, down 19 cents, or 0.2%.

“Oil markets shifted focus from the Middle East conflicts to the global economic outlook,” noted independent analyst Tina Teng based in Auckland, attributing the decline.

Teng highlighted China’s contraction in the producer price index (PPI) for April, indicating sluggish business demand, along with recent U.S. economic data signaling a slowdown.

The previous week saw both benchmarks settling approximately $1 lower as Federal Reserve officials deliberated on whether current U.S. interest rates were sufficient to achieve the target inflation rate of 2%, offsetting gains earlier in the week resulting from the Israel-Gaza conflict.

Analysts anticipate the U.S. central bank maintaining its policy rate at its current level for a prolonged period, bolstering the dollar. This, in turn, makes dollar-denominated oil more expensive for investors holding other currencies.

ANZ analysts noted in a report that oil prices were also impacted by weak demand signs, with U.S. gasoline and distillate inventories rising in the week preceding the commencement of the U.S. driving season.

Globally, refiners are grappling with dwindling profits for diesel due to increased supplies from new refineries and subdued economic activity and mild weather in the northern hemisphere, which further dampens demand.

Nevertheless, the market found support in expectations that the Organization of the Petroleum Exporting Countries (OPEC) and their allies, collectively known as OPEC+, could prolong supply cuts into the latter half of the year.

Iraq, the second-largest OPEC producer, reaffirmed its commitment to voluntary oil production cuts agreed by OPEC, expressing eagerness to collaborate with member countries to foster greater stability in global oil markets, as highlighted by its oil minister in a statement to the state news agency on Sunday.

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