Oil Declines Amid Weak US Fuel Demand and Profit-Taking, According to Reuters

By Nicole Jao

NEW YORK (Reuters) – Oil prices declined on Friday as investors considered weak U.S. fuel demand and decided to take profits ahead of the quarter’s close. Additionally, important inflation data for May increased the likelihood that the Federal Reserve may begin reducing interest rates later this year.

The August futures, which expired on Friday, settled slightly higher by 2 cents at $86.41 a barrel. Meanwhile, the more active September contract decreased by 0.3% to $85 a barrel. U.S. West Texas Intermediate (WTI) crude futures dropped 20 cents, or 0.24%, closing at $81.54.

For the week, Brent increased by 0.02%, while WTI futures reflected a slight loss of 0.2%. Over the month, both benchmarks experienced an approximate 6% rise.

Despite U.S. oil production and demand reaching a four-month high in April, gasoline demand fell to 8.83 million barrels per day, the lowest point since February, according to the latest report from the Energy Information Administration.

"The EIA’s monthly report indicated weak gasoline demand," remarked Phil Flynn, an analyst at Price Futures Group. "These figures didn’t encourage further buying."

Analysts noted that some traders opted to take profits at the conclusion of the second quarter following earlier price rallies this month.

The U.S. personal consumption expenditures (PCE) price index, which the Fed closely monitors for inflation, remained flat in May, raising hopes for potential rate cuts in September. However, financial markets had a subdued response to this release, as noted by Charalampos Pissouros, a senior investment analyst.

The growing anticipation of a Federal Reserve easing cycle has ignited a risk rally across stock markets. Traders have now assigned a 64% chance of a first rate cut in September, an increase from 50% the previous month.

Lower interest rates could benefit the oil market by boosting consumer demand. “Oil prices have been aligning more closely with our fair value estimates, suggesting the strength in fundamentals despite ongoing uncertainties,” commented Barclays analyst Amarpreet Singh in a client note. Barclays predicts that Brent crude may maintain a price around $90 a barrel in the coming months.

A poll indicated that oil prices are expected to remain relatively stable in the second half of 2024, with concerns about Chinese demand and the likelihood of increased supply from major producers balancing geopolitical risks. The poll projects Brent crude to average $83.93 a barrel in 2024, while WTI is expected to average $79.72.

The U.S. active oil rig count, an early indicator of future output, declined by six to 479 this week, marking the lowest level since December 2021, as noted by energy services firm Baker Hughes. Additionally, money managers increased their net long positions in U.S. crude futures and options in the week leading up to June 25, according to the U.S. Commodity Futures Trading Commission.