Key points:

  • US Federal Reserve delays interest rate cuts: Investors fear this will slow the economy and reduce demand for oil.
  • Increase in oil and fuel reserves in the United States – supply exceeds demand.
  • Negotiations on a truce in the Gaza Strip could lead to a reduction in geopolitical tensions and stabilization of oil prices.

The reason for the fall was investor concerns related to the US Federal Reserve’s postponement of interest rate cuts. There have been suggestions that this measure could be postponed to December. Additional pressure on the market was exerted by data on abundant oil and fuel reserves in the United States.

Questions remain about oil demand

Oil prices fell on Thursday after rising in the previous session. Brent crude futures fell 37 cents, or 0.5%, to $82.23 a barrel. U.S. West Texas Intermediate (WTI) crude futures fell 34 cents, or 0.4%, to $78.16.

Oil supply is affected by rising inventories in the United States. The country’s crude oil inventories rose more than expected last week, mainly due to higher imports. Fuel inventories also rose more than expected, according to data from the U.S. Energy Information Administration released Wednesday.

Additional pressure on prices comes from the International Energy Agency’s (IEA) forecast of a possible supply glut in the near future. The IEA report differs from the more optimistic OPEC+ forecast released earlier this week. OPEC+ maintained its forecasts for oil demand growth.

Thus, oil prices are influenced by conflicting signals: on the one hand, OPEC+ predicts an increase in demand, on the other hand, the IEA warns of a possible excess supply.

Other factors

Oil markets are under the influence of two competing factors: on the one hand, the prospect of a ceasefire in the Gaza Strip, which could lead to a decrease in geopolitical tensions and a reduction in the risk of disruptions in oil supplies from the region. On the other hand, maintaining the Fed’s tight monetary policy, expressed in unchanged interest rates, may slow down economic growth and, as a result, limit the demand for oil.

Negotiations on a truce in Gaza have the potential to ease tensions in the Middle East, which in turn could lead to stabilization of oil prices. However, Houthi attacks on shipping in the Red Sea have fueled supply security concerns.

The Fed’s decision to keep interest rates at the same level could have a dual impact on oil prices. On the one hand, higher borrowing costs could slow economic growth, which would negatively impact oil demand. On the other hand, robust inflation, as announced by Fed Chairman Jerome Powell, could signal continued healthy economic activity, supporting energy demand.