Oil prices dipped in Asia on Wednesday as concerns about a potential delay in the U.S. rate-cutting cycle and an increase in U.S. crude stocks outweighed positive news regarding a potential extension of output cuts by OPEC+.
Brent crude futures fell by 30 cents, or 0.36%, to $83.35 a barrel by 0302 GMT, while U.S. West Texas Intermediate futures (WTI) dropped by 28 cents to $78.59 a barrel.
Federal Reserve Governor Michelle Bowman’s indication that she is not in a hurry to cut U.S. interest rates, combined with similar remarks from Kansas City Federal Reserve Bank President Jeffrey Schmid, dampened market sentiment. Investors are concerned that the potential benefits of lower rates may be delayed due to upside risks to inflation.
Vandana Hari, founder of oil market analysis provider Vanda Insights, noted, “There is some profit-taking this morning after the past two sessions recouped the $2 per barrel of Mideast risk premium that crude shed on Friday.
Additionally, the weekly U.S. crude stock surge reported by the American Petroleum Institute (API) contributed to the decline in oil prices. U.S. crude stocks rose by 8.43 million barrels in the week ended Feb. 23, according to market sources.
However, hopes for a Gaza ceasefire deal provided some support to prices. U.S. President Biden announced on Tuesday that Israel has agreed to halt military activities in Gaza for the Muslim holy month of Ramadan, although cautionary notes were sounded by Israel, Hamas, and Qatari mediators regarding progress towards a truce.
Despite these factors, analysts believe that the potential extension of voluntary oil output cuts by OPEC+ could tighten the market. Last November, OPEC+ agreed to voluntary cuts of about 2.2 million barrels per day (bpd) for the first quarter of this year.
Moreover, Russian authorities announced a six-month ban on gasoline exports starting from March 1 to meet rising domestic demand and facilitate planned maintenance of refineries, further supporting the outlook for tighter supply.
Overall, oil prices retreated amid a mix of factors, including cautious sentiments related to U.S. interest rates, concerns about rising crude stocks, and optimism about potential supply tightening measures by OPEC+ and Russia.