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Crude oil posts weekly drop as interest rate policy spurs fuel demand concerns

25 May 2024 8:42 am
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Mumbai, 25 May (Commoditiescontrol): Crude oil prices experienced a modest rise of about 1% on Friday, but recorded a weekly decline due to concerns that robust U.S. economic data could lead to prolonged high interest rates, potentially dampening fuel demand. Brent crude's July contract increased by 76 cents to $82.12 a barrel, while the more actively traded August contract rose by 73 cents to $81.84. U.S. West Texas Intermediate (WTI) crude futures climbed 85 cents, or 1.1%, to settle at $77.72.

Despite Friday's gains, Brent closed the week down 2.1%, experiencing its longest losing streak since early January. Similarly, WTI fell 2.8% for the week. Analysts speculate that the recent selloff might have been overdone, especially with the expected rise in summer demand in the U.S. starting this weekend.

Minutes from the Fed's latest meeting indicated some policymakers were uncertain if current rates were sufficient to control inflation, though further rate hikes appear unlikely.

High interest rates can elevate borrowing costs, potentially slowing economic activity and reducing oil demand. Consumer sentiment has also declined to a five-month low due to fears of persistently high borrowing costs, which could suggest slower consumer spending.

However, global oil demand remains strong. Morgan Stanley analysts project an increase of about 1.5 million barrels per day in oil liquids consumption this year. The Energy Information Administration reported U.S. gasoline demand at its highest since November in the week ending May 17, counterbalancing soft domestic demand with stronger global consumption.

On the supply front, the oil rig count remained steady at 497 this week. The market is now focused on the upcoming June 2 OPEC+ meeting, where members will discuss extending current voluntary production cuts. Analysts expect these cuts to continue at least through September.

Russia acknowledged exceeding its OPEC+ production quota in April due to technical issues, while Venezuela plans to boost production to 1.23 million barrels per day by December. Additionally, the U.S. Commodity Futures Trading Commission reported an increase in net long positions in U.S. crude futures and options for the week ending May 21.

(By Commoditiescontrol Bureau: 09820130172)

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