Oil Prices Continue Downward Trend Amid Dollar Strength and Demand Concerns

Oil prices declined for the fourth consecutive day on Thursday, influenced by a strengthening dollar and concerns about prolonged high U.S. interest rates, alongside worries regarding crude oil demand due to an unexpected increase in U.S. inventories.

As of 14:30 ET (19:30 GMT), oil prices fell, with benchmarks decreasing by 0.7% to $81.36 per barrel and 0.9% to $76.87 per barrel.

Dollar Strengthens Amid Rate Concerns Following Strong Economic Data

The dollar rose, adding pressure to oil prices, following economic data that indicated persistent strength in the economy, contributing to inflationary trends. The S&P Global Flash U.S. PMI Composite Output Index showed a significant increase from 51.3 in April to 54.4 in May, indicating that inflation rates were accelerating with the report noting the second-largest monthly increase in the last eight months.

Additionally, initial jobless claims decreased more than anticipated, highlighting the robustness of the labor market and reducing expectations for potential rate cuts in the near future.

Unexpected Increase in U.S. Inventories

Concerns over weak demand and a well-supplied market were compounded by official data indicating an unexpected rise in U.S. inventories for the week ending May 17. Furthermore, gasoline inventories also saw an increase, while distillate stocks reported a smaller-than-expected decline.

This news cast a negative outlook just ahead of the Memorial Day holiday weekend, typically viewed as the start of the summer travel season, which is anticipated to increase demand.

OPEC+ Meeting in Focus

On the supply side, market attention is turning to an upcoming meeting of the Organization of Petroleum Exporting Countries and allies (OPEC+) scheduled for early June, where the group may consider extending their current production cuts.

Analysts suggest that the decline in oil prices raises the chances that OPEC+ nations will continue their voluntary supply reductions into the latter half of the year. Currently, these producers are implementing voluntary output cuts amounting to around 2.2 million barrels per day for the first half of 2024, primarily driven by Saudi Arabia’s continuation of a previous cut.

These recent reductions add to earlier cuts announced since late 2022, bringing the total proposed reductions to approximately 5.86 million barrels per day, which is almost 6% of global daily demand.