Oil Drops 2% Following Powell’s Comments and Hopes for Increased Venezuela Supply By Reuters

By Stephanie Kelly

NEW YORK – Oil prices experienced a decline of 2% on Tuesday after reaching seven-week highs, following reports that the United States may consider easing certain restrictions on the Venezuelan government, which raised expectations for increased market supplies.

The drop in prices was further influenced by Federal Reserve Chairman Jerome Powell’s warning that efforts to curb inflation could negatively impact the economy.

West Texas Intermediate (WTI) crude fell $1.80, or 1.6%, settling at $112.40 per barrel, while Brent crude decreased $2.31, or 2%, to settle at $111.93 per barrel.

Powell indicated that there could be economic consequences associated with bringing inflation down and stated that the Federal Reserve would continue tightening monetary policy until there is clear evidence of a decline in inflation.

"Some of those comments tempered buying enthusiasm on the oil side," noted Phil Flynn, an analyst at Price Futures Group.

According to sources, the Biden administration is set to authorize Chevron to engage in negotiations with Venezuelan President Nicolas Maduro’s government as early as Tuesday. However, a final U.S. decision on renewing Chevron’s limited operational license in Venezuela has yet to be made.

Oil prices have generally trended upward as Russian supply has been curtailed due to various bans imposed by several nations and the broader economic downturn caused by sanctions on Moscow.

Russia’s oil production saw a 9% decrease in April, significantly under the quotas set by the OPEC+ group, which had agreed to gradually unwind cuts made during the peak of the pandemic in 2020.

Notably, non-Russian oil deliveries to the Polish port of Gdansk reached a seven-year high this month, as refiners in eastern Germany and Poland adapted their sourcing.

"This is ultimately a supply-side issue," remarked Fawad Razaqzada, an analyst at City Index. "Unless OPEC and its allies accelerate production quickly, it will be challenging to witness a significant drop in prices."

On Monday, EU foreign ministers were unsuccessful in their attempts to compel Hungary to lift its veto on a proposed oil embargo. However, some diplomats are optimistic that a phased ban on Russian oil could be agreed upon at a summit scheduled for May 30-31.

Additionally, market sources reported that crude and gasoline stocks decreased last week, based on figures from the American Petroleum Institute. U.S. government data is anticipated on Wednesday.