Oil Prices Extend Declines on Weak Demand Signs and Fed Rate Cut Hopes Dampening
Weak Fuel Demand and Fed Rate Cut Hopes Dampen Oil Prices
Oil prices experienced continued declines on Monday, influenced by various factors affecting market sentiment.
Signs of Weak Fuel Demand
Amidst signs of sluggish fuel demand, both Brent crude futures and U.S. West Texas Intermediate crude futures saw declines. China's producer price index (PPI) contracted in April, reflecting sluggish business demand. Similarly, recent U.S. economic data indicated a slowdown. These factors contributed to concerns about global economic growth and its impact on oil consumption.
Comments from U.S. Federal Reserve Officials
Comments from U.S. Federal Reserve officials also played a role in dampening oil prices. Discussions regarding interest rate cuts raised concerns about economic growth, which could subsequently affect energy use in the world's largest economy. The uncertainty surrounding potential rate cuts added to market volatility and influenced investor sentiment.
Impact on Market Sentiment
Oil markets shifted their focus from geopolitical tensions in the Middle East to broader economic factors. The possibility of interest rate cuts and concerns about weak fuel demand overshadowed previous gains driven by supply disruptions from conflicts like the Israel-Gaza situation.
Expectations Regarding U.S. Interest Rates
Analysts anticipate that the U.S. Federal Reserve will maintain its current policy rate for an extended period, supporting the dollar. A stronger dollar tends to make dollar-denominated oil more expensive for investors using other currencies, further impacting oil prices.
Refiners Struggle with Slumping Profits
Globally, refiners are facing challenges due to slumping profits for diesel. Factors such as increased refinery capacities and reduced demand due to mild weather and slower economic activity have contributed to this decline in profitability.
OPEC+ Supply Cut Expectations
Despite the downward pressure on oil prices, expectations remain for the Organization of the Petroleum Exporting Countries (OPEC) and their allies (OPEC+) to extend supply cuts into the second half of the year. This expectation supports market sentiment amid concerns about oversupply.
Iraq's Commitment to Voluntary Production Cuts
Iraq, the second-largest OPEC producer, reiterated its commitment to voluntary oil production cuts agreed upon by OPEC+. Despite previous discrepancies in meeting production quotas, Iraq expressed its willingness to cooperate with efforts to stabilize global oil markets.
Outlook for the Oil Market
As the oil market navigates through various challenges, including weak demand and geopolitical uncertainties, market participants remain vigilant for further developments. The upcoming meetings of OPEC+ and the Joint Ministerial Monitoring Committee (JMMC) are expected to provide additional insights into the market's trajectory.
