Oil Prices Settle Higher, But Experience Significant Weekly Losses Due to Rate and Demand Concerns

Oil prices experienced a modest increase on Friday, but this was not enough to offset significant weekly losses, driven by concerns over persistent inflation and high interest rates that raised doubts about the strength of demand for the year.

As of 14:30 ET (18:30 GMT), crude prices rose 1% to $82.14 a barrel, but ultimately faced a weekly loss of around 2%. Similarly, West Texas Intermediate (WTI) climbed 1.1% to $77.74 a barrel; however, it too recorded over a 2% decline for the week.

### Oil Faces Weekly Losses Amid Rate Concerns

Both Brent and WTI were on track to close the week with approximately 4% losses, with Brent reaching its lowest point in two months and WTI at a three-month low. The primary driver behind this downward trend has been fears surrounding resilience in U.S. inflation and the likelihood of interest rates remaining high for an extended period.

Signals from the Federal Reserve suggested growing uncertainty among policymakers regarding when inflation would stabilize near the central bank’s target of 2% annually. This indicates that high rates are likely to persist.

Goldman Sachs analysts have revised their predictions on when the Federal Reserve might lower interest rates, stating that they now believe a reduction is unlikely until September. This is a shift from previous expectations of a potential cut in July. According to current assessments, there is now almost an equal chance of the Fed either cutting rates or maintaining them in September.

### Unchanged Rig Count from Baker Hughes

Reports from Baker Hughes indicated that the U.S. rig count remained stable at 497. This stagnation in drilling activity has not significantly impacted domestic oil production, which remains near record levels at 13.1 million barrels per day, exceeding last year’s average of 12.936 million barrels per day.

The ongoing trend of the U.S. leading global oil production—continuing this trend for six consecutive years—has raised concerns about oversupply independent of OPEC’s efforts to regulate output through established agreements.

### Anticipation for Upcoming OPEC+ Meeting

Market attention is now directed toward an upcoming meeting of the Organization of Petroleum Exporting Countries and its allies (OPEC+), scheduled for early June. The focus will primarily be on whether the group will extend existing voluntary production cuts of approximately 2.2 million barrels per day beyond the end of June.

These voluntary cuts supplement previous reductions of 3.66 million barrels per day that were implemented in various phases since late 2022 and are set to last until the end of 2024. In total, the pledged cuts amount to 5.86 million barrels per day, representing about 5.7% of global daily demand.

However, questions remain regarding the tightness of the market this year, especially given that production levels are at record highs. Some easing tensions in the Middle East could translate to fewer disruptions for crude oil supply, while U.S. oil demand is expected to rise in the coming weeks, coinciding with the travel-heavy summer season. The Memorial Day weekend traditionally marks the onset of this season, and early indicators suggest an uptick in gasoline demand in the U.S., the largest consumer of fuel globally.