Crude oil declines in early trade

13 Apr 2023 , 08:14 AM

As investors remained cautious due to persistent worries about a U.S. recession and declining oil demand, oil prices dipped in early trade on Thursday after increasing for the previous two days.

Brent crude had decreased by 19 cents, or 0.2%, to $87.14 per barrel, while U.S. West Texas Intermediate had down by 16 cents, or 0.2%, to $83.10.

The Federal Reserve is expected to stop raising interest rates, as seen by both benchmarks rising 2% on Wednesday to their highest levels in more than a month.

Though there are growing worries that the recent tightening, which brought interest rates to their highest level since 2007, may stifle future economic growth and oil demand in the world’s largest oil consumer.

The Consumer Price Index (CPI) for the United States increased by 0.1% last month, less than the 0.2% gain that economists had predicted and down from a 0.4% increase in February. This has increased views that the Fed would likely cease raising rates after a potential increase in May.

However, a ‘mild recession’ was predicted for later this year by the Fed staff analysing the potential effects of banking stress.

The little increase in U.S. crude oil stocks was ignored by the markets on Wednesday; they attributed it, in part, to fewer exports at the beginning of the month and the release of oil from the country’s emergency reserve, which was required by Congress.

The Energy Information Administration reported on Wednesday that crude inventories increased by 597,000 barrels in the previous week, above experts’ forecasts in a Reuters poll for a 600,000-barrel decrease. Distillate and petrol supplies did not draw as much as anticipated.

According to U.S. Energy Secretary Jennifer Granholm on Wednesday, the Biden administration intends to restock the U.S. Strategic Petroleum Reserve shortly and hopes to do so at lower oil prices if doing so benefits taxpayers throughout the rest of the year.

However, the Organization of the Petroleum Exporting Countries (OPEC) and allies like Russia agreed to reduce output two weeks ago, sending the oil market surging upward.

As a result, the second half of 2023 may see tighter conditions on the world oil market, which would lead to higher prices, according to Fatih Birol, executive director of the International Energy Agency, on Wednesday.

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