Oil Prices Set for Another Weekly Loss

Crude oil prices inched up earlier today but remained on course for yet another weekly loss after the U.S. Federal Reserve signaled once again it had no immediate plans to start cutting rates.

The Energy Information Administration’s weekly oil inventory report also helped depress prices as it estimated a considerable build in inventories, implying weaker demand—just like the Fed’s policy on interest rates.

With rates at the highest in over two decades, concern about U.S. oil demand is quite legitimate. Add to this there has been virtually no oil supply disruption in the Middle East from the Israel-Hamas war, and you get quite a limited upward potential for oil prices.

This potential is currently being realized, with Brent crude slipping below $84 per barrel this week, from close to $90 less than a month ago. West Texas Intermediate declined from over $85 in early April to below $80 per barrel this week.

Whether prices would continue to decline is uncertain, however. Besides all the bearish news, this week also produced a Reuters report citing unnamed OPEC officials who said that the cartel and its partners in OPEC+ could extend their production cuts beyond the first half of the year.

The report recalls that the total withheld oil production in OPEC+ amounts to 5.86 million barrels daily, of which the 2.2 million bpd referred to as the voluntary production cuts, are only part. The other part, 3.66 million bpd, will remain in effect until the end of 2024.

"We think there's a good chance that OPEC+ will extend beyond June - but we aren't yet putting a firm view because we don't think they've actually got into the real period of discussion and decision-making," Energy Aspects analyst Richard Bronze told Reuters earlier this week.

Indeed, an extension would make the most sense in the current price environment when any news of additional supply would crash prices, especially as the geopolitical premium fizzles out.

“The geopolitical premium is being quickly priced out as Israel appears more willing to accept a hostage deal,” Robert Rennie, head of commodity and carbon strategy at Westpac Banking Corp, told Bloomberg. “It’s hard to see a major push above the $90-$95 region for Brent, and the break below $85 suggests a major top is now in place.”

By Irina Slav for Oilprice.com

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