Higher For Longer Bank Rates Dismay Traders, Oil Sheds Over 1%

Meanwhile, China is scheduled to reduce purchases of Saudi crude: File Image/Pixabay

A strong U.S. dollar and the worst kept secret in town that apparently surprised oil traders – that interest rates would remain higher for longer instead of being lowered – contributed to a 1 percent-plus decline in crude prices on Friday.

Brent settled down $1.09 at $82.79 per barrel and for the week logged 0.2 percent loss, while West Texas Intermediate settled down $1.00 at $78.26 per barrel, and logged a 0.2 percent weekly gain.

Traders were impacted by Lorie Logan, president at the Dallas Federal Reserve, remarking that it was unclear if monetary policy was sound enough to reduce inflation to the U.S. Fed's 2 percent goal; also, while Raphael Bostic, president of the Atlanta fed, said the central bank could begin reducing its rates this year it would only be by a quarter of a percentage point and not until winter.

With geopolitical pricing said to be already largely baked in, Friday's trading was unaffected by news that Israel had commenced bombarding part of the southern Gaza city of Rafah, with the highly-touted ceasefire talks between Israel and Hamas going bust.

Traders seemed more concerned by rising U.S. gasoline inventories in advance of the summer driving season: "Given the price decline of the past month and the weaker-than-expected demand trends for U.S. gasoline and diesel, some bearish demand adjustment would appear likely," said Jim Ritterbusch, president of Ritterbusch and Associates.

The next major influencer of oil is shaping up to be the Organization of Petroleum Exporting Countries' (OPEC) meeting early next month to decide on output levels in the second half of 2024: "All eyes are now on OPEC, so we're likely to stay rangebound over the next couple of weeks," said Frank Monkam, senior portfolio manager at Antimo.

In other oil news on Friday, sources familiar with the matter told media that China is scheduled to buy a total of 45 million barrels of Saudi crude but then reduce that volume by 5.8 million barrels in June, with the lower supply mostly in the Arab Medium and Arab Heavy crude grades.

Earlier this week, Saudi Aramco raised the official selling price of all the grades it exports to Asia, and the hike will likely negatively impact Chinese refiners' margins, especially coupled with predictions of weaker diesel demand.