Crude oil prices fall again this week

Crude oil prices rose little by little at the beginning of today, but the weekly decline continued in response to the US Federal Reserve (Fed) once again suggesting that there are no plans to start interest rate cuts for the time being.

The Energy Information Administration's weekly oil inventory report also estimated a significant increase in inventories, similar to the Fed's interest rate policy, and suggested weak demand, which played a role in driving down prices.

Since interest rates are at their highest level in the past 20 years or more, concerns about US oil demand are quite legitimate. In addition to this, there is virtually no disruption in oil supply due to the Israel-Hamas war in the Middle East, and the room for an increase in crude oil prices is quite limited.

This potential is now being realized, with Brent crude falling below $84 per barrel this week and falling to close to $90 a month ago. West Texas Intermediate has fallen from over $85 in early April to less than $80 per barrel this week.

However, it is uncertain whether prices will continue to fall in the future. This week, in addition to all the bearish news, a Reuters report was announced that there is a possibility that the cartel and OPEC Plus partners will extend production cuts beyond the first half of this year, citing statements from anonymous OPEC officials.

The report recalls that the total production volume of crude oil suspended by OPEC+ reached 5.86 million barrels per day, of which 2.2 million barrels per day, called voluntary production cuts, are only a portion. The remaining 3.66 million barrels per day will continue until the end of 2024.

“We think there is a good chance that OPEC+ will be extended beyond 6 months, but in reality, we still don't have a firm outlook because we think we haven't entered the period of full-scale discussions and decision-making yet,” said an energy aspect analyst. Richard Bronze told Reuters earlier this week.

In fact, an extension would be most reasonable, especially in the current price environment where news of additional supply crashes while geopolitical premiums are disappearing.

Robert Rennie, head of the commodities and carbon strategy division at Westpac Bank, told Bloomberg that “geopolitical premiums are rapidly being factored in because Israel has indicated its intention to accept hostage deals.” “It is unlikely that Brent crude oil will significantly exceed the $90-$95 area, and falling below $85 suggests that there is a large ceiling now.”