Crude extends decline despite geopolitical tensions; 4 key reasons that weigh on prices

Crude oil prices extended their slide on Tuesday, with global benchmark Brent crude down more than one percent. And domestically, crude oil prices have fallen.

The fall in crude oil prices comes despite ongoing geopolitical tensions and ahead of the meeting of the Organization of the Petroleum Exporting Countries and its affiliates, collectively known as OPEC+, on supply. Both benchmarks fell less than 1% on the month.

While there have been several Ukrainian drone attacks on Russian refineries, another Houthi strike against a tanker in the Red Sea was reported over the weekend. Moreover, tensions in the Middle East have also escalated following the recent death of Iran’s President Ebrahim Raisi in a helicopter crash.

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However, Brent crude was trading 0.92% lower at $82.94 a barrel, while US West Texas Intermediate (WTI) crude futures fell 0.80% to 79. $16 per barrel. MCX crude oil prices fell 0.41% to ₹6,552.

Traders are looking ahead to the OPEC cartel meeting in early June, which will set the group’s supply policy for the second half.

“NYMEX crude oil is expected to fall to $78 on a strong dollar and fears that the US Federal Reserve will keep its borrowing cost higher for longer, hurting economic growth and oil demand. Meanwhile, investors will be keeping an eye on political uncertainty in two major oil-producing countries after Iran’s president died in a helicopter crash and Saudi Arabia’s crown prince postponed a trip to Japan due to the king’s health,” he said. ICICI Direct said in a note.

The June MCX crude oil contract is expected to decline ₹6,450 levels as long as it trades below ₹6,700 levels.

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Here are the main reasons why crude oil prices are falling:

US interest rates

US Federal Reserve officials said they were waiting for more signs of slowing inflation before considering interest rate cuts. Thus, investors anticipate that the central bank will keep interest rates higher than expected. Higher interest rates and inflation continued to weigh on consumer and industrial demand, pushing up crude oil prices.

middle east

Analysts believe that the death of Iranian President Raisi will not affect the crude market as Iran’s Supreme Leader Ayatollah Ali Khamenei has assured that there will be no disruption to the country’s business.

OPEC+ meeting

Investors remained on the sidelines ahead of the OPEC+ meeting scheduled for June 1 to set production policy. The oil cartel will decide whether to extend voluntary cuts by some members by 2.2 million barrels per day.

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High supply

Supply chains risk being overwhelmed by production outstripping overall demand. Crude oil traders are closely monitoring this week’s crude inventory updates to assess potential supply glut

“Anticipated refinery growth in crude oil markets has not materialized, risking the supply chain being overwhelmed by production outstripping demand. Moreover, spring maintenance in 2024 caused a significant number of refineries to go offline, leading to lower-than-expected demand for crude oil, said Ajay Kedia, director, Kedia Advisory.

Meanwhile, traders will also be keeping an eye on key US PMI data on Thursday. Analysts expect weak data could weigh on crude oil prices, while strong numbers could provide a boost.

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