The price of oil fell by more than 0.5%, as market participants overestimated the prospects for easing the Fed's monetary policy against the background of recent interest rate forecasts. The unexpected growth of oil reserves in the United States and the strengthening of the US dollar also negatively affected oil prices.
Yesterday, the US Central Bank held rates steady at 5.25%-5.50% and suggested it would lower rates just once later this year, down from three rate cuts forecast in March. Meanwhile, the Fed indicated slight optimism that inflation remains on track to trend back towards the Fed's 2% goal. Higher borrowing costs tend to dampen economic growth, and can by extension, limit oil demand. According to the CME FedWatch Tool, markets see a 8.3% probability of a 25 basis point rate cut at the Fed meeting in July, a 61.5% probability of a rate cut in September, and a 74.2% probability of monetary policy easing in November.
Meanwhile, the U.S. Energy Information Administration (EIA) reported on Wednesday that crude inventories rose by 3.730 million barrels in the week ended June 7, following an increase of 1.233 million barrels in the previous week. This marked the largest weekly gain in the U.S. crude inventories since late April. Economists had projected a draw of 1.550 million barrels. At the same time, gasoline stocks jumped by 2.566 million barrels, the most since the week ended January 19 (+4.91 million barrels). Analysts had forecast an advance of 1.250 million barrels. Elsewhere, distillate stocks rose by 0.881 million barrels, the least in three weeks. Analysts had expected a build of 0.500 million barrels.
Traders are also keeping an eye on the ongoing ceasefire talks in the Gaza Strip, which, if successful, will reduce concerns about potential supply disruptions from the oil-producing region.