Oil declines as investors consider the prospects of a US interest rate cut

Oil prices faced continued downward pressure on Wednesday, extending losses from the previous session amid growing expectations that the Federal Reserve may delay interest rate reductions. These expectations overshadowed concerns about recent attacks on shipping in the Red Sea.

Brent and West Texas Intermediate Decline

Brent crude futures declined by 47 cents, equivalent to 0.57 percent, reaching $81.87 per barrel by 1034 GMT. Similarly, US West Texas Intermediate crude futures dropped by 48 cents, or 0.62 percent, to $76.56.

Retreat From Recent Highs

Tuesday witnessed a retreat in both crude contracts from their recent highs, with Brent contracts sliding by 1.5 percent and West Texas Intermediate contracts by 1.4 percent.

Premium Indicates Supply Tightness

The premium for Brent crude futures contracts for April delivery over September contracts hit its highest level since October 31 on Monday, reaching $3.64 per barrel, indicating tight supply conditions in the market. However, it has since decreased to approximately $3.37. This premium serves as a penalty for delayed sales and signals a scarcity of supply in the market.

Fed Interest Rate Expectations Weigh

Apprehensions regarding the Federal Reserve’s timeline for interest rate cuts have been weighing on oil demand forecasts. Last week’s US inflation data led to diminished expectations of an imminent monetary easing cycle by the Federal Reserve, with economists surveyed by Reuters now anticipating a rate cut in June.

Concerns Over Shipping Disruptions Persist

Meanwhile, concerns persist over shipping disruptions in the Red Sea and Bab al-Mandab Strait following attacks by Yemen’s Houthi rebels on vessels. Since Friday, drone and missile strikes have targeted at least four ships, prompting worries about maritime traffic through these critical waterways.

Diplomatic Challenges in the Middle East

In the diplomatic arena, efforts to address tensions in the Middle East continue to encounter obstacles. On Tuesday, the United States wielded its veto power against a UN Security Council draft resolution on the conflict between Israel and Hamas, thwarting a call for an immediate ceasefire on humanitarian grounds. Instead, the US is pushing for a resolution linking the ceasefire to the release of Israeli hostages held by Hamas.