Oil prices fall as demand pessimism grows

Crude oil prices have weakened this week, as expectations of higher rates for longer in the United States were seen depressing demand for everything including oil.

Lower volatility on oil markets as traders cut their bullish positions on crude also helped push oil lower earlier today—a trend that Bloomberg sees extending, as it cited yet another report of a drone attack on a Russian refinery as failing to produce any effect on international oil benchmarks.

Since the start of the year, Brent crude has gained some 9% but the rate of increase has slowed down significantly since the middle of April with a few weeks of losses. Now, traders are waiting for the OPEC+ meeting on June 1 to see whether the cartel’s members would extend their output cuts into the second half of the year. This is the meeting’s outcome widely seen as most likely.

The US Fed, meanwhile remains reluctant to start cutting interest rates, with senior officials citing their lack of conviction that inflation has been put firmly under control, which would justify the rate cuts.

Meanwhile, the news of the death of Iran’s president and the bad health of Saudi Arabia’s king also failed to affect prices in a positive way. According to some analysts, this is because the consequences of these events are yet to manifest themselves.

"While there has been an up move over some uncertainty in Iran, prices have since pared back some gains, as investors price for the status quo in terms of policies for now and that any wider regional conflict remains off the table," IG analyst Yeap Jun Rong told Reuters.

“Dented demand prospects are casting a shadow over the oil markets,” Priyanka Sachdeva, senior market analyst at Phillip Nova, told Bloomberg. “Whatever support we see in oil prices is purely a function of an anticipatory disruption in supplies, and it’s becoming tougher day by day to justify that premium.”

At the time of writing WTI was trading at $79.16 while Brent had fallen below $83.