Background on Key Figures and Organizations
The recent decline in oil prices reflects concerns about an oversupplied market and reduced fuel demand, outweighing expectations that the Federal Reserve’s (Fed) first interest rate cut of the year would boost consumption.
Andrew Lipow, president of Lipow Oil Associates, highlighted the continued strong oil supply and Organization of the Petroleum Exporting Countries (OPEC)’s reduction in production cuts. He also mentioned that Russian crude exports have not been affected by sanctions.
John Kilduff, partner at Again Capital, explained that further quarter-point interest rate cuts by the Fed are unlikely to stimulate oil markets, as they would weaken the dollar and make oil purchases more expensive.
Fed’s Interest Rate Cut and Its Impact on Oil Prices
On Wednesday, the Federal Reserve lowered its benchmark interest rate by a quarter percentage point and signaled further cuts due to signs of weakness in the U.S. labor market.
Typically, lower borrowing costs stimulate oil demand and drive up prices. However, Kilduff argues that the Fed’s measures have not translated into crude market growth due to underlying market fundamentals.
Kilduff’s Perspective on Fed’s Role
“The Fed needs to be more aggressive than it has been so far,” Kilduff stated. “We need a 50 basis points increase to drive demand growth. The Fed’s actions aren’t resulting in crude market expansion due to the current market conditions.”
Weak Demand Concerns and Their Effect on Oil Prices
Energy agencies, including the Energy Information Administration (EIA), have expressed concern over weakening demand, which dampens expectations for a significant short-term price increase, according to Phillip Nova analyst Priyanka Sachdeva.
Lipow’s Observations on Demand: “Refinery maintenance season will further decrease demand,” Lipow noted. Refineries shut down production units in spring and fall for maintenance, known as “turnarounds.”
Oil Price Movements on Friday
On Friday, Brent crude futures dropped 71 cents, or 1.05%, to $66.73 per barrel by 11:53 a.m. Central Mexico time, while West Texas Intermediate (WTI) futures fell 71 cents, or 1.12%, to $62.86 per barrel.
Weekly Trends
Both benchmark contracts were heading for their second consecutive weekly rise.
