Fed rate cuts + ample oil reserves lead to lower prices, limiting oil demand

TraderKnows
TraderKnows
06-13

Recently, due to the United States confirming that there will be no interest rate cuts in the short term, and ample fuel reserves, oil prices have declined.

Oil prices fell in early Thursday trading as investors digested the news that the Federal Reserve might delay rate cuts until December, alongside sufficient U.S. crude and fuel inventories putting pressure on the market.

As of 0415 GMT, Brent crude futures fell by 23 cents, or 0.3%, to $82.37 a barrel; U.S. West Texas Intermediate (WTI) crude futures dropped 20 cents, or 0.3%, to $78.30 a barrel. Both benchmarks had risen about 0.8% in the previous session.

The Federal Reserve on Wednesday held rates steady and postponed the start of policy easing to a possible December.

Higher borrowing costs typically restrain economic growth, thereby limiting oil demand.

Fed Chair Jerome Powell stated in a news conference after the two-day policy meeting that inflation has not caused a significant blow to the economy and added there is no reason to believe this trend will not continue.

On the supply side, data from the U.S. Energy Information Administration showed that U.S. crude inventories rose more than expected last week, mainly due to a surge in imports, while fuel inventories also exceeded expectations.

A bearish report from the International Energy Agency also pressured prices, warning of a potential supply glut in the near term.

"This contrasts sharply with an optimistic report from OPEC+ earlier this week, where the oil group maintained its forecast for improved demand," analysts at ANZ Research said.

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OPEC

OPEC (Organization of the Petroleum Exporting Countries) is a multinational organization established in 1960, consisting of the world's leading oil-producing countries. Its purpose is to coordinate and unify the oil policies of its member countries.

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