Oil prices fell for the second day in a row on Wednesday, March 27th, 2024, pressured by a strengthening US dollar and a surprise increase in US crude and gasoline inventories.
This decline comes after both Brent and West Texas Intermediate (WTI) futures reached four-month highs last week. Brent crude futures for May shed 16 cents, settling at $86.09 a barrel, while the more actively traded June contract fell 22 cents to $85.41. WTI crude futures for May delivery dropped 27 cents, settling at $81.35 a barrel.
Strong Dollar Dampens Demand
A significant factor contributing to the oil price drop is the stronger US dollar. The US dollar index gained for a second consecutive session, making dollar-denominated oil more expensive for buyers using other currencies. This, in turn, reduces global oil demand.
Adding to the downward pressure on oil prices was a surprise jump in US crude and gasoline stockpiles. Data from the Energy Information Administration (EIA) revealed that US crude oil stocks rose by 3.2 million barrels, while gasoline stocks increased by 1.3 million barrels, for the week ending March 22nd. Analysts polled by Reuters had anticipated a decrease in crude stocks of 1.3 million barrels and a decline in gasoline stocks of 1.7 million barrels.
Lower US Gasoline Demand Raises Concerns
Further dampening market sentiment was a decrease in US gasoline demand for the second consecutive week. EIA data showed gasoline demand fell to 8.7 million barrels per day (bpd) from 8.8 million bpd in the prior week.
“Considering that we’re making crude oil to make gasoline, this is a bearish development,” said Robert Yawger, director of energy futures at Mizuho.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies led by Russia, collectively known as OPEC+, are expected to maintain their current oil output policy until their June ministerial meeting. In March 2024, OPEC+ agreed to extend production cuts of about 2.2 million bpd until the end of June. However, concerns linger regarding compliance with these cuts, particularly from Russia and Iraq.
A Reuters survey showed that OPEC exceeded its production targets by 190,000 bpd in February. “The OPEC+ production cuts have sparked debate over volumes, especially concerning Iraq’s overproduction over the past two months,” said Alex Hodes, energy analyst at StoneX. “Another crucial factor is Russia’s potential volume reduction. Monitoring Russian oil flows in the coming quarter will be essential for market observers,” he added.
While the immediate outlook for oil prices remains uncertain, the upcoming OPEC+ meeting in June will be closely watched for any adjustments to production policy. In the meantime, the interplay between the US dollar, global oil demand, and OPEC+ decisions will continue to shape the price of oil.
Source: Reuters
