Oil Extends Losses As Concerns Over U.S. Driving Season Deepen

by Ship & Bunker News Team
Tuesday May 21, 2024

Crude prices on Tuesday extended their losses as traders continued to worry that central banks would keep interest rates at their current level, potentially impacting demand during the summer driving season.

As of 1625 GMT Brent fell $1.21 to $82.50 per barrel, and West Texas Intermediate dropped $1.26 to $78.54 per barrel.

This week's focus on bank rates was triggered by Philip Jefferson, vice chair of the U.S. Federal Reserve, who told the Mortgage Bankers Association conference in New York, "It is too early to tell whether the recent slowdown in the disinflationary process will be long lasting."

This was augmented by Fed governor Christopher Waller, who said in a speech in Washington that "In the absence of a significant weakening in the labour market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy."

Despite the concern, the Energy Information Administration reported that U.S. gasoline prices fell for the fourth consecutive week to $3.58 per gallon on Monday; and the Department of Energy disclosed on Tuesday that it will sell nearly 1 million barrels of gasoline in a reserve in northeastern states to ensure sufficient supply flows in that region.

Crude's continued range bound status prompted Tim Snyder, economist at Matador Economics, to remark, "There is nothing in the market right now that is pushing prices higher…if we see a little bit of a stock draw tomorrow that may help push prices back up into the $78.50-$80 per barrel range."

Helima Croft, head of commodity strategy at RBC Capital Markets, agreed that "I just don't think there's a lot of conviction right now in the market" and added that "We've basically lost all the geopolitical risk premium that have been driving prices higher."

However, Croft seemed to differ from other analysts by maintaining a neutral view of the summer ahead: "We're not having the anxiety that we sometimes get going into summer; but that said, we still have summer driving season ahead of us."

For the record, RBC forecasts U.S. oil will average $79.50 per barrel and Brent $84 per barrel for the rest of the year.