Oil prices plunged three per cent to hit a seven-week low on Wednesday, May 1, on a surprise build in US crude stocks ahead of the Federal Open Market Committee (FOMC) meeting outcome. The prospect of a simmering Middle East ceasefire agreement and persistent US inflation levels also dampened the expected pace of interest rate cuts as well as the crude oil demand growth.
Brent futures fell $2.52, or 2.9 per cent, to $83.81 per barrel, while US West Texas Intermediate (WTI) crude fell $2.58, or 2.1 per cent, to $79.35. This put both benchmarks on track to close at their lowest levels since March 12, 2024 and also pushed both into technically oversold territory for the first time since December 2023. Coming to domestic prices, crude oil futures traded 3.16 per cent lower at ₹6,622 per barrel on the multi commodity exchange (MCX).
In other energy markets, U.S. diesel futures were on track to close at their lowest since July 2023, while U.S. gasoline was on track to drop to a seven-week low.
The U.S. Energy Information Administration (EIA) said energy firms added a surprising 7.3 million barrels of crude into stockpiles during the week ended April 26.
That compares with the 1.1 million barrel withdrawal analysts forecast in a Reuters poll and the 4.9 million barrel increase shown in data from the American Petroleum Institute (API), an industry group.
“The crude build is a big one. At this time of year, we should be drawing down on crude oil as more barrels go through the refinery,” Bob Yawger, director of energy futures at Mizuho, told Reuters.
In addition to the increase in crude stockpiles, EIA also reported a surprising 0.3-million barrel build in gasoline inventories. Analysts expected gasoline stocks would decline by 1.1 million barrels.
In the Middle East, expectations that a ceasefire agreement between Israel and Hamas could be in sight have grown following a renewed push by the United States and Egypt, even as Israeli Prime Minister Benjamin Netanyahu has vowed to go ahead with a long-promised assault on Rafah.
“The crude market is weighed down by continued hopes for a ceasefire,” Ole Hansen of Saxo Bank said. “In addition, stubborn U.S. inflation has further reduced rate cut expectations.”
U.S. Federal Reserve officials will conclude their latest two-day policy meeting on Wednesday with a new statement and comments from Fed Chair Jerome Powell that could give a clearer sense of how recent disappointing inflation readings have changed the expectation for interest rate cuts this year.
Lower interest rates would reduce borrowing costs and could spur economic growth and demand for oil.
Analysts forecast that the Fed is almost certain to hold its benchmark overnight interest rate steady at the current 5.25%-5.50% range, where it has been since July 2023.
The Fed started hiking interest rates in March 2022 to fight inflation.
Another factor that could delay a Fed decision to cut rates was data showing that U.S. private payrolls increased more than expected in April, suggesting that the labor market maintained its momentum early in the second quarter.
Also weighing on crude prices was the stronger U.S. dollar, which could cut demand for oil by making the fuel more expensive for buyers using other currencies.
The dollar was close to its highest level since November after data this week showed more signs of inflationary pressure in the U.S. economy.
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