Crude oil prices continued their downward trend for the third consecutive day, influenced by Federal Reserve comments on potential rate cuts and a shift in the futures market to contango for the first time this year, signaling a potential oversupply.
Brent crude, which was trading above $84 per barrel earlier in the week, dropped to below $82 today. Similarly, West Texas Intermediate (WTI) fell to under $78 per barrel.
The recent decline followed remarks from Dallas Fed President Lorie Logan, who emphasized on Thursday the importance of maintaining flexibility in monetary policy. “It’s really important that we don’t lock into any particular path for monetary policy. I think it’s too soon to really be thinking about rate cuts,” Logan stated.
These comments were in line with those of the New York Fed President, who also indicated that while the current monetary policy was effective, it was premature for the central bank to consider rate cuts given the robust performance of the economy.
For oil traders, rate cuts are typically seen as a catalyst for increased demand. The lack of indications for such cuts in the world’s largest oil-consuming nation has thus dampened demand sentiment. This sentiment was further affected by expectations of weakening oil demand in China.
Additionally, a reported increase in U.S. crude oil inventories by the Energy Information Administration did little to counteract the bearish market effects. This was because the inventory build was accompanied by increases in fuel inventories, suggesting a slowdown in demand.
Looking ahead, the focus is on OPEC+ and its upcoming virtual meeting on Sunday. “A significant driver for oil prices ahead will revolve around the upcoming OPEC+ meeting this weekend,” said Yeap Jun Rong, a market strategist at IG Asia, in an interview with Bloomberg. “Any further cuts may be unlikely and will be seen as a huge surprise.”
Analysts Warren Patterson and Ewa Manthey from ING noted, “The market expects OPEC+ to fully roll over its additional voluntary supply cuts into the second half of the year. Anything less will put further pressure on prices in the short term.”
They also pointed out the challenges within OPEC+ to agree on deeper cuts, especially as some producers are already exceeding their production targets. “It would be more difficult for the group to surprise to the upside. Agreeing on deeper cuts would be challenging, particularly when a handful of producers are already producing above their target levels,” they added.
As the market anticipates the OPEC+ meeting, the outlook for oil prices remains uncertain, with many variables at play including global demand trends and production decisions.
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