Oil slips on US demand, interest rate fears
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[February 29, 2024] By
Jeslyn Lerh
SINGAPORE (Reuters) - Oil prices on Thursday fell after a
larger-than-expected build in U.S. crude stockpiles stoked worries about
slow demand, while signs that U.S. interest rates could remain elevated
added to pressure.
Brent crude futures fell 14 cents, or 0.2%, to $83.54 a barrel by 0420
GMT, after rising 3 cents in the previous session. U.S. West Texas
Intermediate crude futures were down 4 cents, or 0.1%, to $78.50 a
barrel.
U.S. crude oil stockpiles rose while gasoline and distillate inventories
fell last week as refiners ran at below seasonal lows due to planned and
unplanned outages, the Energy Information Administration said on
Wednesday. [EIA/S]
Crude inventories rose for the fifth consecutive week, increasing by 4.2
million barrels to 447.2 million barrels in the week ended Feb. 23, the
EIA said, compared with analysts' expectations in a Reuters poll for a
2.7 million-barrel rise.
"Large stockpiles heightened investors' worries over a slow economy and
reduced oil demand in the U.S.," said Satoru Yoshida, a commodity
analyst with Rakuten Securities.
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"The anticipation of delayed U.S. rate cuts also weighed on the market
sentiment as it could undermine oil demand," he said.
High borrowing costs typically reduce economic growth and oil demand.
Traders have already dialled back expectations for U.S. interest rate
cuts after a slew of strong data, including hot consumer price index and
producer price index readings. They expect an easing cycle to kick off
in June, compared with the start of 2024 when bets were on March.
Market participants are now waiting for the U.S. personal consumption
expenditures price index, the Federal Reserve's preferred measure of
inflation, for more trading cues.
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An oil and gas industry worker walks during operations of a drilling
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The index, to be released on Thursday, is expected to show prices
ticked up 0.3% on a monthly basis in January.
The market also eyed the possible extension of voluntary oil output
cuts from OPEC+, which has limited price declines for now.
"With the demand outlook remaining uncertain, we think OPEC will
extend the current supply agreement to the end of the second
quarter," ANZ analysts Daniel Hynes and Soni Kumari said in a client
note.
The price outlook remains unchanged, the analysts added, projecting
2024 annual average prices at $86 a barrel for Brent and $81 a
barrel for WTI.
The conflict in the Middle East is also expected to keep a floor
under oil prices, Rakuten's Yoshida said.
Hamas urged Palestinians on Wednesday to march to Jerusalem's Al-Aqsa
Mosque at the start of Ramadan next month, raising the stakes in
negotiations for a truce in Gaza, which U.S. President Joe Biden
hopes will be in place by then.
But both Israel and Hamas have played down the prospects for a truce
and Qatari mediators have said the most contentious issues are still
unresolved.
(Reporting by Yuka Obayashi in Tokyo and Jeslyn Lerh in Singapore;
Editing by Himani Sarkar and Sonali Paul)
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