“Oil prices experienced a decline in early Asian trading on Wednesday, influenced by the possibility of a postponed U.S. interest rate reduction cycle, which countered the positive impact of discussions regarding potential extensions to production cuts from OPEC+.
Brent crude futures saw a decrease of 38 cents, equivalent to 0.45%, reaching $83.27 a barrel by 0110 GMT, while U.S. West Texas Intermediate crude futures (WTI) dropped by 35 cents, or 0.44%, to $78.52 a barrel.
Investor sentiment continues to be swayed by indications suggesting a delay in U.S. interest rate cuts due to concerns over sustained inflation.
Federal Reserve Governor Michelle Bowman’s statement on Tuesday implied a lack of urgency in reducing U.S. interest rates, especially considering the upward risks associated with inflation. Such risks could hinder progress in controlling inflationary pressures or potentially lead to their resurgence. This sentiment echoes similar remarks made by Kansas City Federal Reserve Bank President Jeffrey Schmid on Monday. Typically, higher borrowing costs dampen economic growth and subsequently, oil demand.
President Biden announced on Tuesday that Israel has agreed to cease military activities in Gaza during the Muslim holy month of Ramadan. However, both Israel and Hamas, along with Qatari mediators, have expressed cautious optimism regarding progress towards a ceasefire in Gaza.
The recent attacks on ships in the Red Sea by Iran-aligned Houthis in Yemen, in support of the Palestinians, have led to increased freight rates and shipping times. A negotiated ceasefire in Gaza could potentially alleviate tensions in this crucial global shipping route.”
Both crude benchmarks experienced a significant increase of over $1 per barrel on Tuesday following a Reuters report indicating that the Organization of the Petroleum Exporting Countries and its allies, led by Russia (OPEC+), are contemplating extending voluntary oil output cuts into the second quarter. This move aims to provide additional support for the market. According to two sources, these cuts could potentially remain in place until the end of the year.
In November of the previous year, OPEC+ had reached an agreement on voluntary cuts totaling around 2.2 million barrels per day (bpd) for the first quarter of the current year. This agreement was primarily led by Saudi Arabia, which decided to extend its own voluntary cut.
Additionally, Russian authorities announced on Tuesday a six-month prohibition on gasoline exports starting from March 1. This measure aims to offset the rising demand from consumers and farmers while also facilitating the planned maintenance of refineries.