By Oil futures experienced a decline early on Monday, further extending the previous week’s decrease. Traders expressed concerns regarding the global demand outlook as expectations of central banks cutting rates began to diminish.
Price Movements
- West Texas Intermediate crude for April delivery fell by 18 cents, resting at $76.31 per barrel on the New York Mercantile Exchange.
- April Brent crude, the global benchmark, saw a decrease of 25 cents to $81.37 per barrel on ICE Futures Europe. May Brent, which is more actively traded, dropped 23 cents to $80.57 a barrel.
Market Drivers
Last week, crude prices retracted, with WTI hitting its lowest point since Feb. 8 and Brent reaching its lowest settlement since Feb. 14. These values were based on front-month contracts.
Ricardo Evangelista, a senior analyst at ActivTrades, mentioned in an email that with inflation remaining above the Fed’s 2% target and the unexpected resilience of the U.S. economy, market trends indicated a scenario where interest rates would remain high for an extended period.
Considering this situation, economic activity is anticipated to be influenced, resulting in reduced forecasts for future oil demand. The Federal Reserve’s preferred measure of inflation, the core personal-consumption-expenditures index, is scheduled for release on Thursday.
Market Expectations Adjusted in 2024
Investors began 2024 with expectations of significant rate cuts throughout the year, starting in March. However, as new data emerged and the Federal Reserve tempered these projections, market sentiment shifted. Currently, there is a slightly above 50% likelihood that rate cuts will commence in June, with an anticipated total of three to four by the end of the year, as indicated by the CME FedWatch tool.
Yemen Strikes Continue, Impact on Crude Supplies
Recent reports from the Wall Street Journal reveal that the U.S. and U.K. have carried out additional strikes on Houthi targets within Yemen. This military action is part of an ongoing effort to combat the Iran-backed group, which has been disrupting shipping in the Red Sea through drone and missile attacks.
Despite concerns regarding a potential escalation of the conflict between Israel and Hamas, global crude supplies have not been significantly impacted thus far. Analysts attribute this stability to a bearish demand outlook in both China and Western markets. These demand-side factors have outweighed supply-side challenges stemming from geopolitical tensions in the Middle East and production cuts by OPEC. As a result, oil prices have remained below their peak levels from the previous year’s fourth quarter.
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