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Saturday, 13. April 2024

Oil drops 1% amid Fed caution, stock buildup, offsetting OPEC+ hopes.


Oil prices retreated in Asia on Wednesday due to concerns about a potential delay in the U.S. rate-cutting cycle and an increase in U.S. crude stocks, despite a boost from news indicating OPEC+ might extend its output cuts.

Brent crude futures declined by 30 cents, or 0.36%, to $83.35 a barrel by 0302 GMT, while U.S. West Texas Intermediate futures (WTI) slipped 28 cents to $78.59 a barrel.

Federal Reserve Governor Michelle Bowman indicated on Tuesday that she is not hastening to cut U.S. interest rates, especially considering potential upside risks to inflation. These risks could impede efforts to manage price pressures or potentially reignite them.

Kansas City Federal Reserve Bank President Jeffrey Schmid echoed similar sentiments on Monday. Their comments underscored concerns in financial markets that the potential economic advantages of lower rates could be delayed.

“There is some profit-taking this morning after the past two sessions recouped the $2 per barrel of Mideast risk premium that crude shed on Friday,” noted Vandana Hari, founder of oil market analysis provider Vanda Insights.

“It’s a combined response to the weekly U.S. crude stock surge in the API data this morning and continuing hope that a Gaza ceasefire deal will be reached in the next few days,” added Hari.

On Tuesday, President Biden announced that Israel has agreed to suspend military operations in Gaza during the Muslim holy month of Ramadan. However, both Israel and Hamas, along with Qatari mediators, have expressed caution about the progress towards achieving a ceasefire in Gaza.

U.S. crude inventories increased by 8.43 million barrels in the week ending February 23, as reported by market sources referencing data from the American Petroleum Institute (API) on Tuesday.

The data revealed a decline in gasoline inventories by 3.27 million barrels, while distillate stocks saw a decrease of 523,000 barrels.

Brent and WTI futures surged by over $1 per barrel on Tuesday following a Reuters report suggesting that the Organization of the Petroleum Exporting Countries (OPEC) and its allies, led by Russia (OPEC+), are contemplating extending voluntary oil output cuts into the second quarter.

According to sources within OPEC+, extending the output cuts into the second quarter is deemed „likely.“ Additionally, two sources indicated that a longer extension until the end of 2024 is also under consideration.

In November of last year, OPEC+ reached an agreement on voluntary cuts amounting to approximately 2.2 million barrels per day (bpd) for the first quarter of this year. Saudi Arabia led the initiative by extending its own voluntary cut.

ANZ Research analysts noted in a memo that such a decision by the OPEC+ alliance would likely result in a tighter market.

Russian authorities declared a six-month embargo on gasoline exports starting from March 1 to address increased demand from consumers and farmers and to accommodate scheduled maintenance of refineries.


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