WTI depreciates to near $77.90 as higher borrowing costs could dampen oil demand globally

Source Fxstreet
  • WTI price declines as oil concerns over oil demand emerge due to prolonging higher rates.
  • Crude oil prices received support due to escalated tension in the Middle East.
  • API Weekly Crude Oil Stock posted 7.168 million barrels against the expected 4.298 million barrels.

West Texas Intermediate (WTI) oil price opened with a gap-up but edged lower to around $77.90 per barrel on Thursday. The heightened geopolitical conflict in the Middle East is raising concerns about potential supply disruptions, thus contributing to strengthening the prices of Crude oil.

Yemen's Houthi rebels have claimed responsibility for attacking an Israeli cargo vessel. Additionally, on Monday, the Houthi group launched drone and missile strikes on four shipping vessels in the Red Sea and Bab al-Mandab Strait. On Tuesday, the United States once again vetoed a draft resolution at the United Nations Security Council concerning the Israel-Hamas conflict, thereby blocking a call for an immediate humanitarian ceasefire.

However, the Federal Open Market Committee (FOMC) Minutes reflected concerns regarding interest rate cuts, indicating a preference for maintaining higher borrowing costs to address persistent inflationary pressures. This stance has tempered the strength of oil prices, as higher borrowing costs tend to dampen economic activity in the largest oil-consuming country, the United States (US), resulting in lower oil demand.

The Federal Reserve's policymakers may adopt a hawkish stance, influenced by the higher Consumer Price Index (CPI) and Producer Price Index (PPI) figures from January. According to the CME FedWatch Tool, the probability of a Federal Reserve rate cut has significantly decreased to 4.5% for March and to 29.8% for May. While there is a slight decrease in the likelihood of a cut in June, with a probability of 52.2% compared to 53.3% previously, the probability of a rate cut has increased for July, rising to 37.4% from the previous 33.4%.

Crude oil prices face pressure as the American Petroleum Institute (API) reported a higher-than-expected Crude Oil Stock figure of 7.168 million barrels for the week ending February 16, compared to the expected 4.298 million barrels. The previous week's figure was 8.520 million barrels. Investors await the release of the US Energy Information Administration’s (EIA) Crude Oil Stocks Change later in the North American session for further insights into inventory levels.

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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