FX168 Financial News (North America) — On Tuesday (May 21), continued inflation in the US may cause interest rates to remain high for a long period of time, and may put pressure on consumer demand at gas stations. Geopolitical risks did not provide much support for oil prices. These factors led to a close drop of nearly 1% in oil prices. #原油收盘 #

WTI crude oil futures for June due on Tuesday closed down $0.54 per barrel, or 0.68%, to $79.26 per barrel. As of press release, it is currently reported at $78.59 per barrel, a decrease of 0.90%.

(US West Texas Intermediate (WTI) crude oil futures chart, source: FX168)

The settlement price of ICE Brent crude oil futures in July fell 0.83 US dollars/barrel, or 1%, to close at 82.88 US dollars/barrel. As of press release, the report is now $82.81 per barrel, a decrease of 1.08%.

(Brent crude oil futures chart, source: FX168)

[Market News Analysis]

On the economic side, rising borrowing costs take up capital, thereby hampering economic growth and demand for crude oil, and putting pressure on consumer demand.

Price analyst Phil Flynn said, “The market is very concerned about gasoline demand in the US because there are signs that consumers are spending less due to inflation. Unless things get better, the market suggests things may be a little bleak.”

The US Energy Information Administration (EIA) said in its gasoline and diesel report that although the peak summer driving season in the US is about to begin with the Memorial Day holiday this weekend, retail gasoline prices fell to $3.58 per gallon for the fourth week in a row on Monday.

U.S. crude oil inventories and production increased. As of May 17, API Cushing crude oil inventories rose from the previous value of -601,000 barrels to 1.77 million barrels. In the week ending May 17, API crude oil production volume rose from the previous value of 256,000 b/d to 482,000 b/d.

On the supply side, traders and analysts say the global spot crude oil market is weakening due to weak refining demand and sufficient supply. However, the Middle East market is still supported by the region's oil producers voluntarily cutting production to meet OPEC+ commitments.

Senior energy market observers Gary Ross and Ed Morse said that as demand growth slows, it will be difficult for OPEC+ oil producers, including Saudi Arabia and Russia, to lift production cuts next year. Gary Ross said OPEC+ is likely to maintain the current level of production cuts in early June. “The oil market is in transition from weak to strong as the balance between supply and demand tightens in the second half of the year. Prices are expected to gradually rise in the third quarter as inventories drop.” Ed Morse said, “Saudi Arabia is facing a 'free ride-hailing problem' — they are limiting production while other oil producers, including the US and Russia, are increasing production. Saudi Arabia has always increased production when faced with freeride problems. I'll watch out for what's going to happen.”

The US Department of Energy announced that it will sell nearly 1 million barrels of gasoline from the Northeast US gasoline supply reserves to reduce oil prices. According to reports, this sale plan will be carried out from storage sites in New Jersey and Maine, and distributed in increments of 100,000 barrels each time. The US Department of Energy said this approach will ensure that gasoline can reach local retailers and be sold at competitive prices by July 4. GasBuddy analyst Patrick De Haan said that the sale of reserves in the Northeast region had little impact on gasoline prices across the country, although “there may be slight downward pressure on prices” in the Northeast region. He said that the reserve of one million barrels is only about 2.7 hours of total gasoline consumption in the US.

Matador economist Tim Snyder said: “There's nothing on the market right now that can drive up prices. If we see a slight reduction in inventory tomorrow, it may help push the price back to the $78.50-$80/bbl range.”

Meanwhile, comments from Federal Reserve officials indicate that interest rates have remained high for longer than the market had previously anticipated.

Two Fed policymakers said on Tuesday that it is prudent for the Federal Reserve to wait a few more months to ensure that inflation actually returns to the 2% target before starting to cut interest rates.

However, Europe's economic outlook is more optimistic, providing support for oil prices on Tuesday.

ECB President Lagarde said in an interview broadcast on Tuesday that she is “very confident” that inflation in the Eurozone will be controlled as the effects of the energy crisis and supply chain bottlenecks gradually disappear.

The ECB has almost promised to cut interest rates on June 6, so policymakers have turned their attention to discussing interest rate trends since then.

Meanwhile, the fall in geopolitical risk premiums due to the war in Gaza has failed to provide much support.

Price Futures Group analyst Phil Flynn said, “I think the market has taken away some of the risk premium because even if the situation in the Middle East continues to change, this will not affect supply or demand.” He added that the market does not expect this to happen.

The structure of the Brent crude oil contract is weakening, indicating a weak market and strong supply. The premium for Brent's recent contract compared to the second-month contract narrowed to $0.10 per barrel, the lowest level since January. Traders said that the narrowing of the Brent crude oil - Dubai crude oil spread may encourage some Asian refiners to buy more crude oil from the Atlantic basin, while making the Middle East crude supply relatively more expensive.