Crude oil prices are poised for a weekly decline, extending a two-day drop as Federal Reserve comments on interest rates and a shift in the futures market to contango indicate potential oversupply.
Brent crude, which traded above $84 per barrel earlier this week, fell below $82 today. Similarly, West Texas Intermediate dropped below $78 per barrel. The latest price slide was triggered by remarks from Dallas Federal Reserve President Lorie Logan, who emphasized the importance of not committing to a fixed monetary policy path. “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 on Thursday.
These comments were in line with those from the President of the New York Fed, who noted that while the current monetary policy is effective, the central bank is not yet in a position to reduce rates due to the robust performance of the economy.
Traders often view rate cuts as a significant boost to oil demand, and the lack of such intentions from the U.S.—the world’s largest oil consumer—dampens market sentiment. This week, the sentiment was further weakened by expectations of declining oil demand in China.
Additionally, a reported increase in U.S. crude oil inventories by the Energy Information Administration did little to counter the bearish trend, as it was accompanied by rises in fuel inventories, indicating slower demand.
Looking ahead, the focus turns to the OPEC+ virtual meeting scheduled for Sunday. “A significant driver for oil prices ahead will revolve around the upcoming OPEC+ meeting this weekend,” said Yeap Jun Rong, market strategist at IG Asia, in a Bloomberg interview. “Any further cuts may be unlikely and will be seen as a huge surprise.”
ING analysts Warren Patterson and Ewa Manthey noted earlier today that the market expects OPEC+ to maintain 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 wrote. “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.”
In summary, oil prices are set for a weekly decline, influenced by Federal Reserve comments on monetary policy and the futures market shifting into contango, signaling an oversupply concern. The upcoming OPEC+ meeting will be closely watched for any indications of future supply adjustments.
