Oil prices experienced further declines on Monday, driven by indications of sluggish fuel demand and comments from U.S. Federal Reserve officials that tempered hopes of potential interest rate cuts, which could potentially slow economic growth and dampen fuel demand in the largest global economy.
Brent crude futures slipped by 25 cents, marking a 0.3% decrease to $82.54 a barrel by 0505 GMT, while U.S. West Texas Intermediate crude futures saw a dip to $78.07 a barrel, down by 19 cents or 0.2%.
Independent analyst Tina Teng, based in Auckland, highlighted the shift in focus from the Middle East conflicts to the world economic outlook as a contributing factor to the decline in oil markets. Teng noted that China’s producer price index (PPI) contracted in April, indicating sluggish business demand. Additionally, recent U.S. economic data suggested a slowdown, further impacting market sentiment.
The discussion among Fed officials regarding whether U.S. interest rates are sufficient to achieve the desired inflation target of 2% contributed to market uncertainty. This debate offset gains earlier in the week resulting from the Israel-Gaza conflict.
Analysts anticipate that the U.S. central bank will maintain its current policy rate for an extended period, which is expected to bolster the dollar. A stronger dollar tends to make dollar-denominated oil more expensive for investors holding other currencies, thereby impacting oil prices negatively.
Further exacerbating the downward trend in oil prices, analysts at ANZ noted signs of weak demand in the market. This confluence of factors has contributed to the ongoing decline in oil prices.
As oil markets continue to grapple with uncertainty surrounding global economic conditions and the trajectory of interest rates, investors and industry stakeholders remain vigilant for further developments that could influence oil price movements in the coming days.
