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Why is oil declining?


May, 02 2024
watermark Economic news

This week, the price of Brent crude oil has significantly decreased, falling by more than 4%. The current quote of the asset is $83.40 per barrel. North American WTI crude oil fell to the area of $78.80. 


The price reduction is due to several reasons at once. First, there is the lack of significant news from the Middle East. Although this is only a temporary lull, and the appearance of information that Israel will launch an operation in Rafah may disrupt this calm. Prime Minister Benjamin Netanyahu announced plans to carry out military operations in the city of Rafah regardless of the conclusion of a peace agreement with the Palestinian Hamas movement.


The second reason for the decline in the cost of oil is the growth of raw material reserves in the United States. API and EIA data indicate a significant increase in oil and petroleum products reserves, exceeding market expectations. 


  • Commercial oil reserves rose to 460,890 million barrels. The increase amounted to 7.265 million barrels, while analysts expected a decrease of 2.3 million. Strategic oil reserves also continue to increase and currently amount to 366.271 million barrels. 


  • Gasoline reserves rose to 227.087 million, an increase of 344 thousand barrels. The market expected a reduction in inventories by 1.02 million. 


  • Distillate reserves decreased by 732 thousand to 115.850 million barrels. The market expected a decrease, but only by 25 thousand. By the way, the EIA draws attention to the fact that the demand for distillates has been declining recently and remains significantly below the level of 2019. 


Another reason for the decline in the oil market was the growth of the dollar in anticipation of the Fed meeting. The strengthening of the US national currency had a significant negative impact on all commodity markets in general.


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Foreign exchange trading carries a high risk of losing money due to leverage and may not be suitable for all investors. Before deciding to invest your money, you should carefully consider all the features associated with Forex, as well as your investment objectives, level of experience, and risk tolerance.