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Oil prices declined on Thursday as the stronger U.S. dollar and expectations of prolonged high interest rates raised concerns about potential demand reduction.
Brent futures dropped 0.3% to $83.34 a barrel, while U.S. West Texas Intermediate (WTI) crude fell 0.3% to $79.00. Both benchmarks are on track for monthly losses, with Brent down over 5% and WTI down over 3% from last month.
Market analysts attribute the downward pressure on oil prices to a broader risk-off sentiment, which outweighs the positive impact of a larger-than-expected drawdown in U.S. crude inventories revealed by recent API data.
The American Petroleum Institute (API) figures for the week ending May 24 indicated a decline of 6.49 million barrels in crude stocks, exceeding analyst projections of a 1.9 million barrel draw. This suggests a pick-up in U.S. fuel demand due to the summer travel season, which typically starts with the Memorial Day weekend.
Official inventory data from the U.S. Energy Information Administration (EIA) is expected later today.
The rising global oil inventories through April, caused by soft fuel demand, may strengthen the case for OPEC+ producers to maintain their current supply cuts when they meet on June 2nd. Analysts believe that OPEC+ members may extend these cuts until the end of the third quarter to support prices.
Oil markets have been under pressure due to expectations that the Federal Reserve will keep interest rates elevated for a longer duration. Brent crude reached its lowest level in over three months on May 23rd.
A recent Fed survey indicated that while U.S. economic activity continued to expand in April and May, businesses grew more pessimistic about the future, and inflation increased moderately.
Higher borrowing costs tend to constrain funds and consumption, negatively impacting crude demand and prices. The earliest anticipated Federal Reserve rate cut is now September, a shift from the June start that markets had previously expected.
