Tuesday, July 16, 2024
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Oil falls by more than $1 as Fed interest rate outlook fuels demand concerns

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Oil prices fell by more than $1 on Tuesday, with the decline widening on the prospect of prolonged U.S. inflation, high interest rates for an extended period of time, and a drop in consumer and industrial demand.

Brent crude oil futures were down $1.54, or 1.8%, at $82.17 a barrel by 1210 GMT. U.S. West Texas Intermediate crude oil (WTI) futures for June, which expire on Tuesday, fell 1.49 cents, or 1.8%, to $78.31.

The more active July contract fell $1.55, or 1.9%, to $77.75.

Both indexes fell nearly 1% on Monday after Federal Reserve officials said they would wait for further signs of slowing inflation before considering cutting interest rates.

Toshitaka Tazawa, an analyst at Fujifu Securities, said, “The prospect of a Fed interest rate cut has become even more distant, and concerns about a decline in demand have led to selling.” Fed Vice Chairman Philip Jefferson said it was too early to tell whether the inflation slowdown would last for a long time, and Fed Vice Chairman Michael Barr said restrictive policy needed more time. Atlanta Fed President Rafael Bostic said it will “take some time” before the central bank is confident that the slowdown in inflation is sustainable. Comments from Fed officials raised the possibility that interest rates may remain higher for a longer period of time than the market had previously expected. This affects oil markets, as rising borrowing costs tie up funds and hurt economic growth and oil demand.

The market appeared largely unaffected by political uncertainty in the two largest oil producers.

President Ebrahim Raisi, Iran’s hardliner and potential successor to Supreme Leader Ayatollah Khamenei, died in a helicopter crash on Sunday. Separately, Saudi Arabia’s Crown Prince Mohammed bin Salman postponed his visit to Japan, citing the health condition of his father, the King.

Vandana Hari, founder of Banda Insights, said: “The (oil) complex continues to lack any significant bullish-bearish influence that would take prices out of the current narrow range, which has been entrenched since early May. “It’s happening,” he said.

Meanwhile, the structure of the Brent contract has weakened, indicating market softening and supply strength.

The premium for a later-month contract after a previous-month Brent contract narrowed to 10 cents, the lowest since January.

Investors are focused on supplies from the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+. The bloc will meet on June 1 to decide on production policy, including whether to extend voluntary supply cuts of 2.2 million barrels per day by some member countries.

OPEC+ may extend some of its voluntary production cuts if demand does not recover, people familiar with the matter told Reuters.

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