Bearish Fed Concerns Trump Bullish Demand Predictions, Oil Settles Lower

TD Securities thinks trading could resume a downward trajectory: File Image/Pixabay

The fully-expected decision by the U.S. Federal Reserve to hold interest rates steady contributed to demand concerns and on Wednesday caused oil prices to drop, thus eliminating its brief excursion into overbought territory earlier this week.

Brent settled down $1.43, or 1.64 percent, at $85.95 per barrel, while West Texas Intermediate settled down $1.79, or 2.14 percent, at $81.68.

Previously, Tony Sycamore, a market analyst with IG, told media the Fed will likely keep rates unchanged this month, but chances of a rate cut at the June meeting are "now a coin flip."

Wednesday's declines came despite the U.S. Energy Information Administration reporting that crude stockpiles fell unexpectedly last week as exports rose and refiners continued to increase activity; additionally, demand for the motor fuel increased for a fifth straight week.

Traders were also apparently not influenced by bullish remarks from Shaikh Nawaf al-Sabah, CEO of Kuwait Petroleum Corporation, who told delegates to the CERAWeek by S&P Global energy conference that contrary to forecasts of global energy demand peaking in 2030, demand will increase faster than the rate of population growth through 2050.

"That means that we're going to require more energy intensity for the population in the world," al-Sabah said. 

This came on the heels of earlier remarks made by Amin Nasser, CEO of Saudi Aramco, who stated at CERAWeek that as demand for fossil fuels grows, "the current transition strategy is visibly failing on most fronts as it collides with five hard realities."

He added, "A transition strategy reset is urgently needed and my proposal is this: We should abandon the fantasy of phasing out oil and gas and instead invest in them adequately reflecting realistic demand assumptions."

As for oil trading in the near future, Daniel Ghali, a commodity strategist at TD Securities, noted  that with algorithms having reached their maximum long positions and automated buying diminishing, momentum for crude may be poised to return to a downward trajectory.