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Oil records longest losing streak in 5 months on hawkish US Fed policy

 Update: 14:07, 26 May 2024

Oil records longest losing streak in 5 months on hawkish US Fed policy

Crude oil prices jumped about 1% in the previous session but fell for the week on worries that strong US macroeconomic data would keep interest rates elevated for a longer period, curbing fuel demand. Worries over hawkish US Federal Reserve interest rate policy and surge US crude oil inventories weighed on market sentiment.

The Brent crude July contract rose 76 cents to $82.12 a barrel. The more-active August contract closed up 73 cents at $81.84. US West Texas Intermediate (WTI) crude futures settled 85 cents, or 1.1%, higher to $77.72. 

On Thursday, Brent closed at its weakest since February 7 and US WTI futures at their lowest since February 23.

Brent closed down 2.1% for the week. It declined for four straight sessions this week, its longest losing streak since January 2. WTI settled down 2.8% for the week. Coming to domestic prices, crude oil futures settled 0.03 per cent lower at ₹6,469 per barrel on the multi commodity exchange (MCX)

Why is crude oil under pressure?
Minutes of the US Fed's latest policy meeting released on Wednesday showed policymakers questioning whether interest rates were high enough to tame stubborn inflation. Some officials were willing to raise borrowing costs again if inflation surged.

US Fed Chair Jerome Powell and other policymakers have since said they feel further increases are unlikely. Higher interest rates increase the cost of borrowing, which can slow economic activity and dampen demand for oil.

Consumer sentiment also fell to a five-month low on mounting fears about borrowing costs staying high. At face value, pessimism among households would imply slower consumer spending, though the relationship between the two has been weak.

Oil demand is still robust from a broader perspective, analysts at Morgan Stanley wrote in a note, adding they expect total oil liquids consumption to increase by about 1.5 million barrels per day this year.

Soft US gasoline demand has been offset by global demand, which surprised to the upside, especially in the early parts of the year. Us gasoline product supplied, a proxy for demand, reached its highest level since November in the week to May 17, said the Energy Information Administration (EIA).

The market is awaiting a June 2 online meeting of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) to discuss whether to extend voluntary oil output cuts of 2.2 million barrels per day. Analysts largely anticipate that current production cuts will be extended at least to the end of September.

Russia, in a rare admission of oil overproduction, said this week it exceeded its OPEC production quota in April for "technical reasons," a surprise that analysts and industry sources say shows Moscow's challenges in curbing output.

Venezuela aims to produce 1.23 million barrels per day (bpd) of oil in December, adding about 290,000 bpd compared to the start of the year, following the addition of drilling rigs, said oil minister Pedro Tellechea.

Where are prices headed?
Crude oil exhibited significant price volatility, extending its decline amid an increase in US oil stocks and uncertainty surrounding Fed rate cuts. The unexpected rise in US oil stocks pressured prices downward, said analysts.

They also noted that crude oil prices fell following unfavourable comments by Fed officials regarding interest rate cuts. The rebound in the dollar index after the Fed meeting minutes further increased pressure on oil prices, 

Better-than-expected British GDP data and cooling inflation in the European Union are providing some support to prices at lower levels.