Oil prices experienced a modest decline as U.S. inflation data suggested a potential softening in the world’s largest economy, raising concerns about weakened crude demand. Additionally, rising production from OPEC member countries contributed to the downward pressure on prices.
Brent futures for April delivery settled at $83.62 a barrel, reflecting a decrease of 6 cents. U.S. crude settled at $78.26 a barrel, losing 28 cents.
The U.S. personal consumption expenditures (PCE) index, the Federal Reserve’s preferred inflation gauge, indicated January inflation in line with economists’ expectations, keeping the possibility of a June interest rate cut on the table. The mixed economic data influenced market sentiment, as potential rate cuts could support oil demand while also signaling an economic slowdown, impacting oil consumption.
Euro zone inflation declined further in February, potentially prompting the European Central Bank to consider easing interest rates later in the year.
Supply-Side Dynamics and OPEC Output
Crude inventories in the U.S., the world’s leading producer, increased for the fifth consecutive week, rising by 4.2 million barrels according to official data. This exceeded forecasts of a 2.7 million-barrel build.
The Organization of the Petroleum Exporting Countries (OPEC) pumped 26.42 million barrels per day (bpd) in February, up by 90,000 bpd from January, as reported in a Reuters survey. Libyan output also saw a month-on-month increase of 150,000 bpd.
With demand outlook remaining uncertain, analysts anticipate OPEC will extend the current supply agreement through the end of the second quarter. The prolonged agreement aims to manage global oil market dynamics.
Despite ongoing conflict in the Middle East, particularly between Israel and Hamas, the impact on crude flows has been modest, allowing global benchmark Brent to maintain stability above the $80 mark for three weeks.
The conflict shows minimal signs of resolution, as both parties downplay prospects of a truce in the Gaza war. Qatari mediators have indicated that key issues remain unresolved.
President Joe Biden acknowledged reports of Israeli troops firing on people awaiting food aid in Gaza, expressing concern about the incident complicating ceasefire talks.
A Reuters survey of economists and analysts forecast an average price of $81.13 a barrel for the front-month contract in 2024, highlighting ongoing uncertainty in the oil market.