Weak Demand on Tight Supply Keeps Oil Prices in Check
Oil prices fell midweek as the market balanced weak demand and tight supply equation ahead of the Organisation of Petroleum Exporting Countries and allies (OPEC+ meeting. Also supporting the bearish performance was an increase in US job vacancies; indicating the Fed may keep raising interest rates.
International benchmark crude Brent traded at $90.30 per barrel, a 0.68% decline from the closing price of $90.92 a barrel in the previous trading session on Tuesday. The American benchmark West Texas Intermediate (WTI) traded at the same time at $88.55 per barrel, down 0.76% from Tuesday’s close of $89.23 per barrel.
Concerns that the Fed may continue to raise interest rates for a longer period than expected following Tuesday’s data flow from the US boosted oil prices. According to Labor Department figures released Tuesday, US job openings increased more than expected to 9.61 million in August, relative to the forecast of 8.8 million.
A slew of analysts believe that the increase in the number of job vacancies, a measure of labour demand, indicates that the labour market is still in good shape despite the Fed’s stringent monetary policy.
Markets are now focusing on the ADP non-farm employment data, which will be issued later on Wednesday, in order to gain insight into the Fed’s imminent interest rate decision. Meanwhile, Atlanta Fed President Raphael Bostic said Tuesday that the US Federal Reserve must stay ‘vigilant’ to keep inflation going in the right direction.
‘Uncertainty and risks mean that the FOMC (Federal Open Market Committee) must stay vigilant to ensure that inflation does not reverse its trajectory,’ Bostic said in a statement.
‘Though momentum is in the right direction, it’s too early to claim victory in our fight. Higher prices have inflicted hardship on many American households. That must not happen again.’
The Fed has made 11 rate hikes since March 2022 to tame record inflation, but these moves also risked pushing the US economy into a recession. The rising value of the US dollar was another cause for the downturn in prices. The dollar index ended Thursday at 106.85, the highest level in the last 10 months.
When the US dollar strengthens against other currencies, dollar-indexed crude oil becomes more expensive and consequently less lucrative for holders of other currencies.
Market players are now focused on the upcoming OPEC group’s Joint Ministerial Monitoring Committee (JMMC) later on Wednesday amid expectations of a rollover of the group’s ongoing supply cuts.
Meanwhile, supply concerns deepened further when Russian Deputy Prime Minister Aleksander Novak said that they would continue the fuel export ban until the domestic market is stabilized.
“The ban on diesel fuel and gasoline exports is expected to last as long as it is needed to stabilize the Russian market,” said Novak.
Limiting further price declines, the American Petroleum Institute (API) late Tuesday announced an estimated decrease of 4.2 million barrels in US crude oil inventories, against the market expectation of a draw of 92,000 barrels. The findings show that the country’s crude oil demand recovery from pandemic-era lows is taking longer than expected, pushing prices lower.
The US Energy Information Administration’s (EIA) data on oil stocks will be announced later on Wednesday, and if the stock decline is confirmed to be lower than estimates, prices could fall further. #Weak Demand on Tight Supply Keeps Oil Prices in Check
