Oil Prices Fall Above $1 After US Inflation, Fed Outlook Hits Consumer Demand; Brent at $82/bbl

Brent crude futures were down $1.21, or 1.45 percent, at $82.50 a barrel. U.S. West Texas Intermediate (WTI) crude futures for June were down $1.26, or 1.58 percent, at $78.54. The more active July contract lost $1.09, or 1.37%, to $78.21. The structure of the Brent contract is weakening, indicating a softer market and strong supply.

Read also: Russian oil imports from India rose to nine-month high in April as shipments from Sovcomflot resume

The premium for the first-month Brent contract over the second-month contract narrowed to 10 cents, the weakest since January 2024, according to the Reuters news agency. Domestically, crude oil futures last traded 0.02% higher at ₹6,569 per barrel on the Multi Commodity Exchange (MCX).

Why is crude oil under pressure?

-Analysts said the market is very focused on gasoline demand in the US as there are signs that consumers are cutting back on inflation. If he doesn’t come back, the market suggests that things could be a little bleak.

-Despite an extension to this weekend’s Memorial Day holiday, which kicks off the peak U.S. summer season, retail gasoline prices fell for a fourth straight week on Monday to $3.58 a gallon, said Energy Information Administration (EIA) under gasoline. and diesel upgrade.

-However, in an attempt to ensure sufficient supply flows to the Northeast, the US will sell the nearly one million barrels of gasoline from a reserve in the Northeast states, with auctions scheduled for May 28, it was announced on Tuesday the Department of Energy.

-Investors await minutes from the US Federal Reserve’s latest policy meeting on Wednesday, as well as weekly data on US oil inventories. Analysts are not saying anything in the market right now that will push prices higher.

-Meanwhile, comments from Fed officials indicated that interest rates remain higher than markets previously expected. Two Federal Reserve policymakers said it was prudent for the U.S. central bank to wait a few more months to ensure inflation is back on a path toward its 2 percent target before starting interest rate cuts.

– “Absent a significant weakening of the labor market, I need to see several more months of good inflation data before I’m comfortable supporting an easing of monetary policy,” Fed Governor Christopher Waller said.

-On the supply side, a fading geopolitical risk premium from the ongoing war in Gaza has failed to provide much support. The market also appeared largely unaffected by the death of Iranian President Ebrahim Raisi, a potential successor to Supreme Leader Ayatollah Ali Khamenei, in a helicopter crash on Sunday.

-The market has taken some of the risk premium as it appears that although Israel is continuing in Rafah, it is not affecting supply or demand. Crude oil prices may not change much on Iranian oil policy after the president’s death.

-Investors focus on supply from the Organization of the Petroleum Exporting Countries (OPEC) and its allies (OPEC+). They are scheduled to meet on June 1 to set output policy, including whether to extend some members’ voluntary supply cuts of 2.2 million barrels per day. OPEC may extend some voluntary cuts if demand fails to accelerate.

Read also: Oil posts weekly gain after US and Chinese macro data boost demand; Brent nears $84/bbl, WTI up 2% in 5 days

Where are prices headed?

Analysts said WTI crude futures were under pressure as investors weighed the weak demand outlook against the lack of supply disruption. The Fed officials’ Soviet comments enhanced the belief that rates could remain higher for longer and the amount of cuts could be smaller than market expectations, which could hurt oil demand going forward, according to Kaynat Chainwala – Senior Manager, Commodities Research – Kotak Securities.

At the same time, recent events such as Ukraine’s attacks on Russian refineries and a Houthi missile strike in the Red Sea continued to pose risks to global supplies. Comments from Fed officials led to profit-taking from higher levels and a rebound in the dollar index.

“Despite this, geopolitical tensions may continue to support prices at lower levels. We expect crude oil prices to remain volatile. Crude oil has support at $78.10-77.50 and resistance at $79.20-79.90. In INR, crude oil is supported at ₹6,510–6,440, while resistance is at ₹6,650–6,730,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

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Published: May 21, 2024, 11:10 PM IST