Oil Dips for Fourth Day on US Rate Hike Expectations

Oil prices fell for the fourth straight session on Thursday as minutes from the Federal Reserve’s meeting revealed discussions about further tightening interest rates if inflation remains persistent, a move that could hurt demand for oil.

The minutes of the Federal Reserve’s latest policy meeting released on Wednesday showed that the US central bank’s response to sticky inflation will mean keeping interest rates on hold for now but also reflect discussion of the possibility of further hikes.

“Several participants noted the desire to tighten policy further if upside risks to inflation materialized in a way that would make such action appropriate,” the Fed minutes said. Higher interest rates make borrowing more expensive, which could reduce the money available to boost economic growth and oil demand in the world’s largest oil-consuming country.

Also weighing on the market was a rise in US crude inventories of 1.8 million barrels last week, according to the Energy Information Administration, versus expectations for a decline of 2.5 million barrels. Russia said it exceeded its OPEC+ production quota in April “for technical reasons” and would soon submit a plan to the OPEC Secretariat to compensate for the mistake, the Russian Energy Ministry said late Wednesday.

Citi said it still expects OPEC+, which includes OPEC and allies led by Russia, to keep production cuts on hold until the third quarter of this year when it meets on June 1. Citi’s report also said it still expects Brent to average $86 a barrel in the second quarter of 2024.

Oil Prices Now

Brent crude futures fell 20 cents, or 0.2%, to $81.70 a barrel. US West Texas Intermediate (WTI) crude futures fell 29 cents, or 0.4%, to $77.28. Both benchmarks fell more than 1% on Wednesday.

Fed Minutes Push Gold to This Level

Gold prices fell for the third straight session on Thursday as minutes from the latest Federal Reserve meeting showed some officials are leaning towards raising interest rates.

While the current monetary policy suggests keeping the US central bank’s benchmark interest rate on hold, the minutes released on Wednesday also reflect discussions of further possible hikes.

Traders’ bets have grown skeptical that the Fed will cut rates more than once in 2024, with expectations now pointing to a 73% chance of a rate cut by November.

Gold and Dollar Now

Gold futures are now down 1.1% to $2367 an ounce. Spot gold is down about 0.6% to $2365 an ounce. On the other hand, the dollar index is flat at 104.790 points.

Other Metals

Spot silver fell 0.8% to $30.52, platinum fell 0.2% to $1032.54, and palladium fell 1.1% to $988.25.

Summary of Fed Minutes and Why Gold Collapsed and Wall Street Fell After

The Fed minutes were released and left a hawkish impression on the market, which was immediately reflected in a decline in Wall Street indices.

Below, we will shed light on the summary of the Fed minutes and the most important points that came out of them:

– More than one member mentioned raising interest rates as an option if inflation rises again and bounces back.

– Some members saw that the impact of high interest rates has become weak compared to the past.

– Fed members agree that interest rates are currently tight, but they are not sure to what extent.

– Some members have changed their expectations for how long interest rates will remain high to be longer than their initial expectations.

– Some members expressed concern that general financial conditions are not tight enough or natural.

Summary of the Minutes and Why the Markets Reacted

The statements of the Fed members were characterized by firmness and the intention to keep interest rates high and tight for a longer period with the mention of raising interest rates as an option, which makes the voice of the Fed members tend to be hawkish, unlike the statements of its President Jerome Powell.

Concern seemed clear in the comments of the Fed members, which could reduce the chances of a rate cut in 2024 by more than 25 basis points.

– Fed members assessed the results of inflation in the first quarter of 2024 as disappointing.

– Fed members discussed the need to keep interest rates at tight levels (5.5%) for a longer period to avoid inflation rebounding.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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