Brent declines as Fed indicates possible rate cuts this year

The front-month ICE Brent contract shed $0.26/bbl on the day, to trade at $82.91/bbl at 09.00 GMT.

PHOTO: Silhouette of an oil pumping unit. Getty Images

Upward pressure:

Brent futures gained some upward pressure this week as tensions in the Middle East have escalated again. The physical oil market is witnessing “signs of tightening,” ANZ Bank’s senior commodity strategist Daniel Hynes said.

Earlier this week, Russia’s Deputy Prime Minister Alexander Novak affirmed that the country will continue to slash production by 500,000 b/d in February as well, despite a fall in oil refining capacity.

Russia’s total refinery throughput has declined by 7% since the beginning of this year due to some refineries being damaged because of Ukrainian airstrikes, state-owned media agency TASS reported, citing data from the energy ministry.

Meanwhile, rising geopolitical unrest in the Middle East also provided some support to Brent’s prices this week. Houthis have continued to attack ships in the Red Sea despite a strong naval deployment by the US and other countries in the region.

Downward pressure:

Brent futures shed the previous day’s gains after the US Federal Reserve (Fed) suggested that it is looking to cut interest rates this year. These cuts, however, may not come too soon.

The US Fed could take at least another couple of months to observe a slump in inflationary pressures and subsequently cut interest rates, Reuters reported Fed governor Christopher Waller as saying.

Higher interest rates in the US may dampen global demand for commodities like oil, as it hikes purchasing costs for non-dollar holders.  

Brent’s price gains were also capped after the US Energy Information Administration (EIA) reported a 4 million bbls increase in commercial US crude inventories to reach 442.96 million bbls in the week ended 16 February.

The US weekly stock build has brought back demand growth worries in the oil market.

By Aparupa Mazumder

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