Oil Prices Decline Ahead of New Update on US Supplies

Oil prices experienced a decline on Tuesday as investors awaited new updates on weekly crude inventories and continued to grapple with concerns regarding the effects of prolonged high U.S. interest rates on oil demand, alongside uncertainty in the Middle East.

As of 14:30 ET, prices fell by 1% to $82.88 per barrel for one type of crude, while another type slipped 0.7% to $79.26 per barrel.

### Weekly Crude Supplies Update

The drop in oil prices precedes the release of inventory data from the American Petroleum Institute, expected later on Tuesday, followed by a report from the Energy Information Administration on Wednesday. Recent data indicated that crude inventories fell significantly more than anticipated in the week ending May 9, raising hopes for an uptick in demand as the summer driving season approaches.

### U.S. Rate Fears Cloud Demand Outlook

Concerns about sustained high U.S. interest rates continue to weigh heavily on crude markets. Several Federal Reserve officials have recently cautioned about this scenario due to persistent inflation.

Vice Chair Philip Jefferson remarked that it is premature to determine whether the current economic slowdown is “long lasting.” Similarly, Vice Chair Michael Barr indicated that there needs to be more time for restrictive policies to take effect, dampening hopes for early interest rate cuts. Additional insights are expected from more Fed officials on Tuesday, including Barr, as well as FOMC members Thomas Barkin, John Williams, and Raphael Bostic, just ahead of the release of minutes from the Fed’s late-April meeting.

High interest rates are anticipated to limit economic activity in the largest economy in the world, which could negatively impact crude demand and restrict investment and economic growth that typically bolster oil consumption. The International Energy Agency recently revised its forecast for crude demand downwards, citing rising concerns about weak economic conditions due to the influence of interest rates. Conversely, the Organization of Petroleum Exporting Countries has maintained its demand outlook, highlighting resilience in top oil-exporter China, which has implemented a series of stimulus measures to support its growth.

### Political Uncertainty in the Middle East

Recent political developments in the Middle East have contributed to a degree of uncertainty. Iranian President Ebrahim Raisi, who was considered a potential successor to Supreme Leader Ayatollah Ali Khamenei, was killed in a helicopter crash over the weekend. Additionally, there are growing concerns over the health of Saudi King Salman bin Abdulaziz after Crown Prince Mohammed bin Salman postponed a scheduled trip to Japan. While these incidents have not directly impacted oil supplies, they have created political unease in two major oil-producing nations.

### U.S. to Sell 1 Million Barrels of Gasoline

In a move aimed at reducing gasoline prices ahead of the summer driving season, the Biden administration plans to sell 1 million barrels of gasoline from strategic reserves located in the Northeast.

### OPEC Meeting Awaits Further Cues

Oil markets are also anticipating an upcoming OPEC meeting in June, during which the organization, along with its allies including Russia, will assess output policies. This includes discussions on whether to extend voluntary supply cuts of 2.2 million barrels per day, primarily from Saudi Arabia. If demand does not show signs of recovery, OPEC+ may decide to extend these cuts beyond the initial deadline of June.

Analysts have noted that as the market awaits clarity from OPEC+ regarding its output policies for the latter half of the year, some indicators of weakness are emerging. Refinery margins have been declining, suggesting potential reductions in refinery operations, especially in Asia, alongside a weaker physical crude market.