In an upward crawl, oil prices nudged higher on Thursday, recouping losses from the preceding trio of days, despite the U.S. Federal Reserve contemplating further interest rate tightening if inflation persists. Such a move could potentially dent oil demand.
As of 1121 GMT, Brent crude futures saw a 0.6% rise, adding 51 cents, reaching $82.41 per barrel. Meanwhile, U.S. West Texas Intermediate crude (WTI) futures mirrored this ascent, climbing 0.7% with a 51-cent increase to hit $78.08. Notably, both benchmarks endured a more than 1% slump on Wednesday, marking their third consecutive day of decline.
The release of minutes on Wednesday from the Federal Reserve’s latest policy gathering revealed discussions about the prospect of raising interest rates in response to persistent inflationary pressures.
The minutes highlighted, “Various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.”
Economic Implications of Higher Interest Rates
The surge in interest rates tends to elevate borrowing expenses, thereby constraining funds that could otherwise fuel economic expansion and bolster oil demand in the United States, the world’s foremost oil-consuming nation.
Additionally, the market faced headwinds as U.S. crude inventories swelled by 1.8 million barrels last week, as per the Energy Information Administration, contrary to an anticipated drawdown of 2.5 million barrels.
On a global scale, physical crude markets encountered pressure due to subdued refinery demand and ample supply.
In a commentary on Thursday, Citi analysts noted, “Recent market softness has come on the back of weaker data, including rising oil inventories, tepid demand, and refinery margin weakness and the increasing risk of run cuts.”
Russia’s Production Quota Exceeded
Russia acknowledged surpassing its OPEC+ production quota in April due to “technical reasons” and pledged to outline its compensation plan to the Organization of the Petroleum Exporting Countries (OPEC) Secretariat shortly, as conveyed by the Russian Energy Ministry late on Wednesday.
OPEC+—an alliance comprising OPEC and non-OPEC allies, spearheaded by Russia—will convene on June 1 to deliberate on production cut levels.
John Evans, an oil broker at PVM, remarked, “June’s meeting is seen as difficult in being able to tighten the market further, and there is a growing consensus that the best the cartel will come up with is a rollover of current voluntary cuts. This may show results in the autumn, but for now, it will do little to assuage a market lacking in confidence.