Oil’s winning streak may be coming to an end, as the U.S. Federal Reserve’s announcement of delayed interest rate cuts has caused oil prices to drop. Brent crude futures were down 1.1 percent at $83.73 a barrel, while U.S. West Texas Intermediate crude futures were 1.3 percent lower at $77.62. Despite this decline, there are indications of healthy fuel demand and supply concerns, which could revive prices in the coming days.
Fed Governor Christopher Waller suggested that interest rate cuts should be delayed by a couple more months to assess if the recent increase in inflation is a temporary setback or a sign of stalling progress towards price stability. However, keeping interest rates higher for longer could slow economic growth and potentially reduce oil demand in the largest consumer market.
Nonetheless, analysts argue that oil demand remains strong, particularly in the U.S. ANZ research indicates that U.S. crude oil inventories rose less than expected last week, and refinery run rates are expected to increase in the coming weeks.
JPMorgan’s high-frequency demand indicators also show a consistent rise in oil demand, with an increase of 1.7 million barrels per day month over month. This growth is attributed to increased travel demand in China and Europe.
Following Mr. Waller’s comments, oil benchmarks experienced a slight decline, but it is important to note that the U.S. Fed has held its policy rate steady for several months, with most central bankers expressing concerns about easing policy too quickly.
The recent hostilities in the Red Sea, with continued attacks by Iran-aligned Houthis near Yemen, led to a temporary increase in oil futures on Thursday.
While oil prices may be experiencing a temporary setback due to the delayed interest rate cuts, the overall outlook for oil demand remains positive. The market should closely monitor any developments in fuel demand and supply concerns as these factors could play a significant role in reviving oil prices in the near future.
