Key points:

  • Oil prices are falling due to fears of slowing economic growth and lower oil demand.
  • Minutes of the Fed meeting that the body is considering the possibility of further tightening monetary policy to combat inflation.
  • Analysts forecast that the average Brent price in the second quarter of 2024 will remain at $86 per barrel.

Oil prices fell for the fourth day in a row, influenced by the minutes of the US Federal Reserve meeting. The minutes showed that the Fed is considering further tightening of monetary policy if inflation continues to rise. This could lead to slower economic growth and lower oil demand.

Brent crude futures are trading at $81.70 a barrel, down 0.2% from the previous day. Futures for US West Texas Intermediate (WTI) crude fell 0.4% to $77.28 per barrel. It’s worth noting that both benchmark indices fell more than 1% on Wednesday.

The results of the Fed meeting put pressure on oil

Minutes from the US Federal Reserve’s latest meeting were released on Wednesday, May 22, shedding light on the central bank’s approach to persistent inflation. The minutes say the Fed intends to keep interest rates at current levels.

However, some meeting participants spoke in favor of further tightening monetary policy if inflation risks become more serious.

Higher interest rates make borrowing more expensive, which could lead to slower economic growth and lower U.S. oil demand. The United States is the world’s largest consumer of oil, so the American economy plays an important role in determining world oil prices.

Why is the oil market getting cheaper?

The weakness of the oil market is due to several factors.

U.S. oil inventories rose 1.8 million barrels last week, beating forecasts of 2.5 million barrels, according to the Energy Information Administration. Oil demand from refineries remains low, putting pressure on prices. The global oil market is oversupplied, which leads to lower prices.

There are growing concerns that production cuts could lead to further declines in oil demand and prices.

In addition, Russia reported that it exceeded its OPEC+ production quota in April due to “technical reasons.” It is expected to soon unveil a plan to compensate for overproduction. Citi analysts believe OPEC+ is likely to maintain production cuts in the third quarter of 2024. They forecast that the average Brent price in the second quarter of 2024 will remain at $86 per barrel.