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Oil Prices Decline Amidst Demand Concerns and Geopolitical Risks

Economic Data and Geopolitical Tensions Weigh on Oil Market

Oil prices settled down 3% on Wednesday, facing downward pressure from multiple fronts including a surge in U.S. commercial inventories and softer economic data from both China and the United States. Despite ongoing geopolitical tensions in the Middle East, particularly heightened by Iran’s recent attack on Israel, concerns regarding global demand have taken precedence in shaping oil market dynamics.

Brent and U.S. Crude Futures Experience Significant Drops

Brent futures for June concluded down $2.73, equivalent to 3%, settling at $87.29 per barrel, while U.S. crude futures for May saw a similar decline, dropping $2.67 or 3.1% to $82.69 a barrel. These declines mark the most significant fall since March 20 and reflect the market’s response to recent economic and geopolitical developments.

Impact of Rising U.S. Crude Inventories

The unexpected increase in U.S. crude inventories, which rose by 2.7 million barrels to reach 460 million barrels last week according to government data, has contributed to the bearish sentiment in the oil market. This surge nearly doubled analysts’ expectations, as outlined in a Reuters poll projecting a 1.4 million-barrel build.

Congressional Progress on Aid Bills and Federal Reserve’s Stance

Further impacting oil prices, U.S. House Speaker Mike Johnson’s announcement regarding the imminent filing of aid bills for Ukraine, Israel, and the Indo-Pacific, along with measures targeting Russia, China, and Iran, influenced market sentiment. Additionally, the Federal Reserve’s decision to refrain from offering guidance on potential interest rate cuts disappointed investors, dampening hopes for significant reductions in borrowing costs this year.

Mixed Signals from Global Economies

While Britain experienced a slower-than-expected inflation rate in March, suggesting a potential delay in the Bank of England’s first rate cut, inflation across the euro zone decreased last month, fueling expectations for a rate cut by the European Central Bank in June. In China, despite a faster-than-expected first-quarter economic growth rate, various indicators indicate lingering concerns over domestic demand.

Maintenance Plans at Tengiz Oilfield

Amidst these developments, Tengizchevroil’s announcement of scheduled maintenance at one of the production trains in the Tengiz oilfield in Kazakhstan in May adds to the complexities facing the global oil market.

While geopolitical tensions in the Middle East continue to pose supply risks, the prevailing narrative in the oil market revolves around demand worries exacerbated by economic indicators and inventory data. How these factors evolve in the coming weeks will likely shape the trajectory of oil prices, with market participants closely monitoring both geopolitical developments and economic signals.

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