Fear of weaker demand has led to selling as chance of Fed rate cut becomes more distant, says Fujitomi Securities analyst
21 May 2024 - 07:39
byYuka Obayashi and Trixie Yap
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Tokyo/Singapore — Oil prices fell in early Asian trade on Tuesday, with investors expecting lingering US inflation and higher interest rates to depress consumer and industrial demand.
Brent crude futures fell 44c, or 0.53%, to $83.27 a barrel by 3.13am GMT. US West Texas Intermediate crude (WTI) slipped 51c, or 0.64%, to $79.29 a barrel.
Both benchmarks fell less than 1% on Monday as US Federal Reserve officials said they were awaiting more signs of slowing inflation before considering interest rate cuts.
“Fears of weaker demand led to selling as the prospect of Fed rate cut became more distant,” said analyst Toshitaka Tazawa at Fujitomi Securities.
Fed vice-chair Philip Jefferson said on Monday it was too early to tell whether the inflation slowdown was “long lasting,” while vice-chair Michael Barr said restrictive policy needed more time. Atlanta Fed president Raphael Bostic said it would “take a while” for the central bank to be confident that a price growth slowdown is sustainable.
Lower interest rates reduce borrowing costs, freeing up funds that could boost economic growth and demand for oil.
On the other hand, the market appeared little affected by political uncertainty in two major oil-producing countries.
“While there has been an [increase] over some uncertainty in Iran, prices have since pared back some gains, as investors price for the status quo in terms of policies for now and that any wider regional conflict remains off the table,” IG market strategist Yeap Jun Rong said.
Iranian President Ebrahim Raisi, a hardliner and potential successor to Supreme Leader Ayatollah Ali Khamenei, was killed in a helicopter crash, while Saudi Arabia’s crown prince, Mohammed Bin Salman, deferred a trip to Japan because of the health of his father, the king.
“The death of the Iranian president and the Saudi king’s health issue don’t seem to be affecting the market much, as it is unclear whether they will have an immediate impact on energy policy,” Fujitomi’s Tazawa said.
Investors are focusing on supply from oil cartel Opec and its affiliates, together known as Opec+. They are scheduled to meet on June 1 to set output policy, including whether to extend some members’ 2.2-million barrels a day of voluntary cuts.
“Prices remain in wait for a catalyst to drive a breakout of the current range, with eyes still on any geopolitical developments, along with oil inventories data this week,” Yeap said.
Opec+ could extend some voluntary output cuts if demand fails to pick up, people with knowledge of the matter previously told Reuters.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Oil falls on worry high rates will subdue demand
Fear of weaker demand has led to selling as chance of Fed rate cut becomes more distant, says Fujitomi Securities analyst
Tokyo/Singapore — Oil prices fell in early Asian trade on Tuesday, with investors expecting lingering US inflation and higher interest rates to depress consumer and industrial demand.
Brent crude futures fell 44c, or 0.53%, to $83.27 a barrel by 3.13am GMT. US West Texas Intermediate crude (WTI) slipped 51c, or 0.64%, to $79.29 a barrel.
Both benchmarks fell less than 1% on Monday as US Federal Reserve officials said they were awaiting more signs of slowing inflation before considering interest rate cuts.
“Fears of weaker demand led to selling as the prospect of Fed rate cut became more distant,” said analyst Toshitaka Tazawa at Fujitomi Securities.
Fed vice-chair Philip Jefferson said on Monday it was too early to tell whether the inflation slowdown was “long lasting,” while vice-chair Michael Barr said restrictive policy needed more time. Atlanta Fed president Raphael Bostic said it would “take a while” for the central bank to be confident that a price growth slowdown is sustainable.
Lower interest rates reduce borrowing costs, freeing up funds that could boost economic growth and demand for oil.
On the other hand, the market appeared little affected by political uncertainty in two major oil-producing countries.
“While there has been an [increase] over some uncertainty in Iran, prices have since pared back some gains, as investors price for the status quo in terms of policies for now and that any wider regional conflict remains off the table,” IG market strategist Yeap Jun Rong said.
Iranian President Ebrahim Raisi, a hardliner and potential successor to Supreme Leader Ayatollah Ali Khamenei, was killed in a helicopter crash, while Saudi Arabia’s crown prince, Mohammed Bin Salman, deferred a trip to Japan because of the health of his father, the king.
“The death of the Iranian president and the Saudi king’s health issue don’t seem to be affecting the market much, as it is unclear whether they will have an immediate impact on energy policy,” Fujitomi’s Tazawa said.
Investors are focusing on supply from oil cartel Opec and its affiliates, together known as Opec+. They are scheduled to meet on June 1 to set output policy, including whether to extend some members’ 2.2-million barrels a day of voluntary cuts.
“Prices remain in wait for a catalyst to drive a breakout of the current range, with eyes still on any geopolitical developments, along with oil inventories data this week,” Yeap said.
Opec+ could extend some voluntary output cuts if demand fails to pick up, people with knowledge of the matter previously told Reuters.
Reuters
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