Oil Sees Weekly Loss as Interest Rate Policy Raises Fuel Demand Concerns – Reuters

By Arathy Somasekhar

HOUSTON – Oil prices experienced a rise of approximately 1% on Friday, yet they recorded a decline over the week. This was largely due to concerns that robust U.S. economic data would likely sustain elevated interest rates for an extended period, potentially dampening fuel demand.

The July contract increased by 76 cents, reaching $82.12 a barrel, while the more actively traded August contract closed up 73 cents at $81.84. Additionally, U.S. West Texas Intermediate (WTI) crude futures settled 85 cents, or 1.1%, higher at $77.72.

On Thursday, Brent crude closed at its lowest point since February 7, and U.S. WTI futures hit their lowest level since February 23. With summer demand in the United States expected to rise beginning this weekend, some investors are questioning whether the recent selloff was overdone, according to Dennis Kissler, senior vice president of trading at BOK Financial.

For the week, Brent crude fell by 2.1%, marking four consecutive days of losses—the longest losing streak since January 2. WTI also declined, settling 2.8% lower for the week.

Concerns regarding the Federal Reserve’s interest rate policy and a rise in U.S. crude oil inventories last week have contributed to the overall market sentiment, noted Tim Evans, an independent energy analyst. The minutes from the Fed’s recent policy meeting indicated that some policymakers questioned whether current interest rates were sufficient to tackle persistent inflation, with some officials open to raising borrowing costs again in response to any inflation surge. However, Fed Chair Jerome Powell and other members have suggested that additional increases are unlikely.

Higher interest rates typically raise the cost of borrowing, which can hinder economic activity and diminish oil demand. At the same time, consumer sentiment has dipped to a five-month low amid growing concerns about sustained high borrowing costs. This pessimism could suggest slower consumer spending, although the correlation between the two has been inconsistent.

Despite these concerns, analysts at Morgan Stanley maintain that oil demand remains strong overall, forecasting an increase of approximately 1.5 million barrels per day in total liquids consumption this year. While U.S. gasoline demand has softened, global demand has surpassed expectations, particularly earlier in the year. According to the Energy Information Administration, U.S. gasoline product supplied reached its highest level since November in the week ending May 17.

On the supply front, the oil rig count, a potential indicator of future production levels, remained steady at 497 this week, as reported by energy services firm Baker Hughes.

The market is also anticipating a meeting on June 2 among the OPEC+ producer group, which includes OPEC and its allies, to discuss the possibility of extending voluntary oil output cuts of 2.2 million barrels per day. Analysts generally expect these production cuts to be extended at least until the end of September.

In a rare acknowledgment of oil overproduction, Russia recently stated that it exceeded its OPEC+ production quota in April due to "technical reasons," highlighting challenges in controlling output.

Meanwhile, Venezuela plans to ramp up its oil production to 1.23 million barrels per day by December, an increase of approximately 290,000 barrels per day compared to the start of the year, thanks to the addition of new drilling rigs, according to oil minister Pedro Tellechea.

Additionally, money managers have increased their net long positions in futures and options as of the week ending May 21, as reported by the U.S. Commodity Futures Trading Commission.