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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Oil Prices Remain Rangebound as Demand Concerns Mount

  • High interest rates and inflation are dampening consumer spending and demand for oil around the world.
  • Ample supply and weak demand are keeping oil prices stuck in a range, with WTI below $78 and Brent trading around the $82 mark.
  • The possibility of a second-half price increase depends on a recovery in consumer confidence.
oil prices

Weakening demand is keeping crude oil prices stuck in a range that they can’t break above. Ample supply is helping. In even worse news for oil bulls, the chances of this state of affairs changing anytime soon are slim.

The perception that demand is weakening comes from traders and analysts who spoke to Reuters this week, saying refiners in some big markets were buying less crude. As for the reason for this lower buying, it was twofold and nothing new. Inflation and interest rates—this is what is driving oil prices lower or keeping them stuck around $80 at best.

“Rising refinery capacity has not been met by an expected rise in demand,” Saxo Bank’s Ole Hansen told Reuters. “Consumers are feeling the pressure from high interest rates and inflation, as well as trade wars and a challenging geopolitical environment.”

Interest rates have become the go-to explanation of most analysts whenever oil prices slip. Ironically, interest rate hikes were central banks’ way of trying to tame inflation that boomed during and after the pandemic lockdowns, but it seems the attempt has not been especially successful—even though inflation rates are going down. They are simply not going down fast enough, so the Fed and the European Central Bank, notably, are in no rush to cut rates—meaning they are effectively keeping inflation higher, dampening consumer spending.

Bullish drivers for oil prices, meanwhile, seem to be all but absent after the death of Iran’s president Ebrahim Raisi failed to prompt a rally. Indeed, some analysts seem to believe that geopolitics is the only tailwind for crude oil, and right now, this tailwind is not blowing.

“I just don’t think there’s a lot of conviction right now in the market,” RBC Capital Markets’ Helima Croft told CNBC this week. “We’ve basically lost all the geopolitical risk premium that have been driving prices higher.”

At the same time, fundamentals appear to be solid, especially in the supply department, helping keep a lid on prices. This is not because of any major production growth anywhere. This is all because of weaker demand from refiners, notably in the United States, where refining rates, Reuters reported, have been lower than the seasonal average even after the end of maintenance season.

Yet demand for crude oil remains on a growth path, Rystad Energy said in a new report this week. The consultancy said that this forecast was motivated by the fact that “low-carbon alternatives are not yet sufficiently developed or economically competitive to offset the growing demand for transportation and industrial services.”

Speaking of growing demand, driving season begins in the northern hemisphere, which normally leads to increased demand. How much of an increase this year will see, what with all the headwinds battering consumer spending in most of that hemisphere, remains unclear for now, but RBC Capital Markets sounded a cautiously bullish note, saying, “We’re not having the anxiety that we sometimes get going into summer. But that said, we still have summer driving season ahead of us.”

We might also see a rate cut this summer—in the eurozone. The ECB signaled in April that it may start cutting interest rates in June after the eurozone economy posted positive though minor growth and inflation stabilized at 2.4%. The rate cut is being considered as a way of avoiding too substantial a slowdown in economic growth while trying to tame inflation.

The U.S. Federal Reserve, however, has no intention of cutting rates next month, it seems. The latest signal from Chairman Jerome Powell was discouraging for those expecting a cut. Consumer prices ticked 3.4% in April, which is quite far from the Fed’s 2% target.

At the latest Fed meeting on monetary policy, Powell said that “Inflation is still too high. Further progress in bringing it down is not assured and the path forward is uncertain.” This statement alone is enough to put a lid on oil prices for a while seeing as the United States is the world’s largest consumer of the commodity.

What all this means is that OPEC+ will almost certainly extend its production cuts into the second half of the year and perhaps even into next year. The fundamental balance in oil remains precarious and any move to bring back any production may have a disproportionately harsh effect on prices.

This suggests that oil prices may remain weaker for longer than previously considered likely, especially in the absence of a new geopolitical trigger and the loss of power in existing triggers. The one factor left that could push prices higher remains demand—and its relation to supply.


There were warnings earlier this year from analysts that the oil market was going to swing into a deficit in the second half of the year due to healthy demand growth and not-so-healthy supply growth. Whether this deficit will materialize is yet to be seen.

At the time of writing, WTI was trading at $77.70 while Brent had fallen to 

By Irina Slav for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on May 22 2024 said:
    How could global oil demand be weakening when market fundamentals are solid, global oil demand robust and China's crude imports are breaking last year's records rising by 6.9%? The proof is that the United States hasn't been able to refill its SPR.

    The perception that demand is weakening is created and perpetrated by the United States in cahoots with oil traders, speculators, Reuters and the IEA in order to depress oil prices for the benefit if US economy.

    Moreover, the bulk of global oil demand doesn't come from stagnating economies facing anew rising inflation levels like the United States' and the EU's but from the fast-growing economies of China and the Asia-Pacific region with the lowest rates of inflation.

    It is inevitable that very soon solid market fundamentals will overcome current market manipulation thus allowing crude oil prices to resume their surge with Brent price headed towards $90 a barrel.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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