Oil Prices Continue Decline Amid Weak Fuel Demand and Fed Rate Cut Uncertainty

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Oil prices extended their decline on Monday as signs of weak fuel demand emerged and comments from U.S. Federal Reserve officials tempered hopes of interest rate cuts, potentially slowing growth and curbing fuel demand in the world’s largest economy.

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Brent crude futures dipped 26 cents, or 0.3%, to $82.53 a barrel by 0025 GMT, while U.S. West Texas Intermediate crude futures hovered at $78.03 a barrel, down 23 cents, or 0.3%.

Friday saw both benchmarks settle approximately $1 lower as Federal Reserve officials deliberated on whether U.S. interest rates are sufficiently high to drive inflation back to the targeted 2%.

Analysts anticipate the U.S. central bank to maintain its policy rate at the current level for an extended period, bolstering the dollar. A strong greenback renders dollar-denominated oil more expensive for investors holding other currencies.

Weak demand indicators also weighed on oil prices, according to ANZ analysts, as U.S. gasoline and distillate inventories increased ahead of the commencement of the U.S. driving season.

Refiners globally face challenges with diminishing profits for diesel amidst increased supplies from new refineries and subdued economic activity due to mild weather in the northern hemisphere.

Nevertheless, market sentiment is buoyed by expectations that the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, might prolong supply cuts into the second half of the year.

Iraq, the second-largest OPEC producer, reaffirmed its commitment to voluntary oil production cuts agreed by OPEC and expressed eagerness to collaborate with member countries in stabilizing global oil markets, as stated by its oil minister to the state news agency.

The minister’s remarks followed Iraq’s suggestion that it had already made sufficient voluntary reductions and would not entertain further cuts proposed by the wider OPEC+ group at its upcoming meeting in early June.

Earlier this month, OPEC+ criticized Iraq for exceeding its output quota by a cumulative 602,000 barrels per day in the first quarter of 2024. Baghdad agreed to compensate for this by implementing additional production cuts throughout the year.


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