Oil prices declined by 1 percent amid the uncertainty surrounding the global oil market as the world looks to the Middle East for a solution.
Brent crude oil, against which Nigeria crude oil is priced, declined by 83 cents, or 1% to $82.88 a barrel, while U.S. West Texas Intermediate crude (WTI) slipped by 54 cents, or 0.7% to $79.26.
The backdrop of escalating U.S. inflation has cast a shadow over the global oil market as higher borrowing costs threaten to curb economic growth and subsequently suppress oil demand.
Ahead of the Memorial Day holiday, which traditionally marks the beginning of the U.S. peak summer driving season, retail gasoline prices have experienced a downward trend, falling for the fourth consecutive week to $3.58 per gallon on Monday, according to the Energy Information Administration (EIA).
Despite this, the underlying concerns regarding diminished consumer spending and fuel consumption linger, posing challenges for the oil market.
To address potential supply constraints, the U.S. announced plans to sell nearly 1 million barrels of gasoline from a reserve in northeastern states, with bids due on May 28, as disclosed by the Department of Energy.
This strategic move aims to mitigate any disruptions in gasoline supply, further underscoring the delicate balance between supply and demand dynamics.
Furthermore, U.S. diesel prices have witnessed a decline, down 5.9 cents per gallon on Monday to $3.89, according to the EIA. Diesel, a critical component in both the industrial sector and transport, reflects broader trends in economic activity and consumption patterns.
Investor sentiment remains cautious as they await key developments, including the release of Federal Reserve meeting minutes and U.S. oil inventory data from the EIA, scheduled for Wednesday.
Tim Snyder, an economist at Matador Economics, emphasized the importance of inventory data in shaping market sentiment, suggesting that a potential stock draw could provide support to oil prices within a defined range.
While geopolitical events, such as the tragic death of Iranian President Ebrahim Raisi in a helicopter crash on Sunday, have captured global attention, their impact on oil markets has been relatively muted.
The structure of the Brent contract has shown signs of weakening, indicating a softer market sentiment amidst robust supply conditions.
The narrowing of the front-month Brent contract’s premium to the second-month contract to 10 cents, its weakest level since January, further underscores the prevailing market dynamics and supply-demand equilibrium.