Oil prices extended their downward trajectory for a third consecutive session on Wednesday, reacting to the anticipation that the Federal Reserve might prolong higher U.S. interest rates amidst sustained inflationary pressures, a factor that could potentially curtail fuel consumption in the world’s largest oil consumer.
Brent crude futures experienced a decline of 71 cents, equivalent to 0.9%, settling at $82.17 per barrel, while U.S. West Texas Intermediate crude (WTI) futures slipped by 73 cents, also marking a 0.9% decrease, reaching $77.93 as of 0650 GMT. These declines follow a 1% decrease in oil prices recorded on Tuesday, reflecting the growing investor concerns over the impact of monetary policy decisions on energy markets.
The Federal Reserve’s policymakers, in their latest pronouncement, suggested adopting a cautious stance, indicating that the central bank should exercise patience and wait for several more months to ascertain whether inflation is indeed trending back towards its 2% target before considering any adjustments to interest rates. This cautious approach stems from the recognition that higher borrowing costs, typically associated with interest rate hikes, could impede economic growth and subsequently reduce oil demand.
Moreover, reports emanating from market sources, citing figures from the American Petroleum Institute (API), revealed an uptick in U.S. crude oil and gasoline inventories during the previous week, although distillates experienced a decline. This data emerged just ahead of the Memorial Day holiday weekend, which traditionally heralds the beginning of the peak summer driving season in the United States. Despite expectations for increased travel and fuel consumption, retail gasoline prices have seen a fourth consecutive week of decline, accompanied by a decrease in diesel prices, a crucial refined product for both the industrial and transportation sectors.
Market sentiment remains focused on the impending release of minutes from the Federal Open Market Committee (FOMC) meeting, as well as the weekly U.S. oil inventory data from the U.S. Energy Information Administration (EIA) slated for later on Wednesday. Analysts are keenly awaiting insights from the FOMC minutes regarding the Fed’s assessment of inflationary trends in the first quarter and the potential implications for future interest rate adjustments in 2024.
In contrast to the United States, the euro zone is poised for a potential rate cut on June 6, driven by a more optimistic economic outlook. European Central Bank President Christine Lagarde expressed confidence in controlling euro zone inflation, signaling a divergent monetary policy stance compared to the cautious approach adopted by the Federal Reserve.