Oil falls for fourth straight session as dovish US Fed stance weakens demand outlook; Brent at $81/bbl

Oil prices fell for a fourth straight session on Thursday, May 23, as the prospect of higher US interest rates for longer fueled concerns about rising demand in the world’s biggest oil market. High interest rates increase the cost of borrowing, which can slow economic activity and dampen demand for oil.

Brent crude futures were down 45 cents, or 0.6%, at $81.45 a barrel. U.S. West Texas Intermediate (WTI) crude futures were down 57 cents, or 0.7 percent, at $77 a barrel. Domestically, crude oil futures were last up 0.02%. ₹6,398 per barrel on the multicommodity exchange (MCX).

Read also: US Federal Reserve minutes show officials rallying around higher rates for longer

Why is crude oil under pressure?

– Data from S&P Global showed an acceleration in US business activity this month, however, manufacturers also reported a rise in prices for a number of inputs, suggesting an increase in commodity inflation in the coming months.

-On Wednesday, minutes from the US Federal Reserve’s latest policy meeting showed that policymakers remain doubtful whether current interest rates are high enough to tame stubborn inflation.

– Also weighing on the market, US crude inventories rose by 1.8 million barrels last week, according to the Energy Information Administration (EIA), compared with an expected draw of 2.5 million barrels. However, the EIA also reported that US gasoline demand is the highest since November, providing some support to energy markets.

-Investors are also awaiting the June 1 meeting of the Organization of the Petroleum Exporting Countries and its allies (OPEC+), where the group will decide its production policy. Russia said it exceeded its OPEC production quota in April for “technical reasons” and will submit its compensation plan for the error to the OPEC Secretariat, the Russian Energy Ministry said on Wednesday.

Read also: IEA vs OPEC: IEA widens gap with OPEC on 2024 crude demand forecast; June policy decision viewed

Where are prices headed?

Kaynat Chainwala – Senior Manager, Commodities Research – Kotak Securities said that with the current weakness in oil markets, OPEC may extend production curbs until 2H 2024 when they meet on June 1.

The risk premium on Middle East tensions has declined while oil supplies remain flat, according to Rahul Kalantri, VP Commodities, Mehta Equities Ltd. “We expect crude oil prices to remain volatile. Crude oil has support at $76.10-75.50 and resistance at $77.50-78.10. In INR, crude oil is supported at ₹6.410-6.340 and resistance to ₹6,540-6,610,” Kalantri added.