Oil Prices Maintain Losing Streak on Inflation Confusion

The U.S. crude oil benchmark, West Texas Intermediate (WTI) has fallen well below the $80 mark it surpassed at the beginning of the week, with Brent crude also losing ground around $82 per barrel as inflation concerns once again took center stage. 

At 1:45 p.m. ET on Wednesday, WTI was trading down 0.92% on the day, trading at $77.94, while Brent crude was trading down 0.81% at $82.21 per barrel.

On Tuesday, the Federal Reserve put the brakes on oil prices when it suggested waiting months longer before implementing any rate cuts as inflation figures fail to paint a clear picture. 

The Fed is looking for indications that inflation is fully on track to fall to 2% prior to any rate cuts that analysts had hoped would come as soon as June or July.

"The Federal Open Market Committee (FOMC) minutes will be scrutinized for the Fed's assessment of bumpy Q1 inflation and clues on the timing and extent of potential interest rate cuts in 2024," ANZ analysts said in a report cited by Reuters on Wednesday. 

Lower interest rates typically reduce borrowing costs and often lead to an increase in industrial activity and, hence, energy consumption. 

Interest rates continue to fall, but the decline is not fast enough for analysts to be assured of rate cuts this summer. At the same time, the Fed’s unwillingness to cut rates essentially helps keep inflation higher by holding down consumer spending. 

Last week, economic data presented very mixed signals for traders in crude oil, with the producer price index (PPI) rising 0.5% in April, which indicates inflationary pressure, contrasted with the consumer price index (CPI), which met expectations with a modest 0.3% rise, suggesting inflation is easing. 

Oil prices are responding to these mixed inflationary signals, against a backdrop of perceptions among analysts that demand is weakening. Speaking to traders and analysts earlier this week, Reuters reported that refiners were buying less crude, when the expectation is that they would be buying more due to increasing refinery capacity.

By Tom Kool for Oilprice.com

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