Oil retreats as Fed jitters trump OPEC+ output curbs

28 Feb 2024 , 09:55 AM

In early Asian trading on Wednesday, oil prices fell as rumours of extensions to OPEC+ output restrictions countered the positive impact from the possibility of a postponed U.S. rate-cutting cycle.

U.S. West Texas Intermediate crude futures (WTI) were down 35 cents, or 0.44%, to $78.52 a barrel, while Brent crude futures slid 38 cents, or 0.45%, to $83.27 a barrel.

Amid worries about prolonged inflation, investor confidence has continued to be impacted by indications of a belated start to U.S. rate decreases.

Michelle Bowman, the governor of the Federal Reserve, indicated on Tuesday that she is not in a rush to lower interest rates in the United States, especially in light of the inflation concerns that could impede efforts to moderate price pressures or even cause them to resurface.

This came after President Jeffrey Schmid of the Kansas City Federal Reserve Bank made similar statements on Monday. High borrowing rates usually mean lower oil demand and slower economic growth.

President Biden of the United States announced on Tuesday that Israel has consented to stop military operations in Gaza for the Muslim holy month of Ramadan. However, there have been cautionary remarks made by Qatari mediators, Israel, and Hamas regarding the status of the Gaza truce negotiations.

Freight costs and shipping times have gone up as a result of Houthis in Yemen who support the Palestinian cause and have attacked ships in the Red Sea. Tensions in the main shipping channel could decrease as a result of a negotiated ceasefire in Gaza.

Following news from Reuters that the Organisation of the Petroleum Exporting Countries (OPEC+) and its allies, led by Russia, may think about extending voluntary oil output cuts into the second quarter in order to support the market further, prices for both benchmarks of crude oil increased by more than $1 per barrel on Tuesday. The cuts might remain in effect until the end of the year, according to two sources.

With Saudi Arabia leading the way, OPEC+ decided in November of last year to roll over its own voluntary cut, amounting to roughly 2.2 million barrels per day (bpd) for the first quarter of this year.

Additionally on Tuesday, Russian authorities declared that starting on March 1, petrol exports would be prohibited for six months in order to meet the increased demand from farmers and consumers as well as to accommodate scheduled refinery repairs.

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