Global oil prices fell for the second consecutive session as fears of higher interest rates dampened market sentiment. U.S. Federal Reserve officials signaled they were awaiting more evidence of slowing inflation before considering any interest rate cuts, contributing to the decline.
Brent crude traded near $83 per barrel, down by 0.39% on the day, despite having gained 1.45% last week. Similarly, West Texas Intermediate (WTI) crude was at $78.73 per barrel, a decrease of 0.38% for the day.
“Fears of weaker demand led to selling as the prospect of a Fed rate cut became more distant,” explained Toshitaka Tazawa, an analyst at Fujitomi Securities, according to Reuters.
Federal Reserve Vice Chair Philip Jefferson mentioned on Monday that it was too early to determine if the inflation slowdown is “long-lasting,” while Vice Chair Michael Barr emphasized that the restrictive policy needs more time to be effective. Additionally, Atlanta Fed President Raphael Bostic noted that it will “take a while” for the central bank to be confident in a sustainable slowdown in price growth.
Lower interest rates generally reduce borrowing costs, potentially boosting economic growth and increasing demand for oil. However, the current stance of the Fed suggests that rate cuts are not imminent, affecting investor sentiment.
Interestingly, the market showed little reaction to political uncertainty in two major oil-producing nations. Iranian President Ebrahim Raisi, a hardliner and potential successor to Supreme Leader Ayatollah Ali Khamenei, died in a helicopter crash. Meanwhile, Saudi Arabia’s Crown Prince Mohammed Bin Salman postponed a trip to Japan due to the health of his father, King Salman.
“While there has been an up move over some uncertainty in Iran, prices have since pared back some gains, as investors price for the status quo in terms of policies for now and that any wider regional conflict remains off the table,” said Yeap Jun Rong, a market strategist at IG, in an email to Reuters.
Fujitomi’s Tazawa added, “The death of the Iranian President and the Saudi king’s health issue don’t seem to be affecting the market much, as it is unclear whether they will have an immediate impact on energy policy.”
Investors remain focused on the supply decisions from the Organization of the Petroleum Exporting Countries and its affiliates, collectively known as OPEC+. They are set to meet on June 1 to discuss output policy, including whether to extend some members’ 2.2 million barrels per day of voluntary cuts.
“Prices remain in wait for a catalyst to drive a breakout of the current range, with eyes still on any geopolitical developments, along with oil inventories data this week,” Yeap added.
