Oil prices edged down on Thursday amid concerns over retreating fuel demand in the United States. The decline came after the U.S. economy slowed more than expected in the first quarter, and data showed signs of weakening demand.
According to the EIA/S Energy Information Administration (EIA) report on Wednesday, U.S. gasoline stockpiles fell by less than forecast, and distillate stockpiles rose against expectations of a decline in the week to April 19. This reflected signs of slowing demand.
While U.S. crude inventories unexpectedly fell sharply last week, with exports jumping, the concerns about U.S. fuel demand weighed on the market.
“Although we thought the Department of Energy inventory data for last week was bullish overall, there are some concerns regarding apparent demand,” said Tim Evans, an independent energy analyst.
The concern about U.S. fuel demand arises amid signs of cooling U.S. business activity in April and as stronger-than-expected inflation and employment data means the Federal Reserve is seen as more likely to delay expected interest rate cuts.
“The current weakness in benchmark prices, after testing above $90 levels, is due to market sentiment refocusing on global economic headwinds over geopolitical tensions,” said Emril Jamil, senior oil analyst at LSEG Oil Research.
While fighting in the Gaza Strip between Israel and Hamas is expected to expand, with Israel potentially starting an assault on Rafah, in the enclave’s south, oil supply has not been affected as yet, and there have been no other signs of direct conflict between Israel and Hamas-backer Iran, a major oil producer, since last week.
“Traders continue to waver on how much geopolitical risk to price in after Israel and Iran backed away from further direct confrontation last week, Evans said, cautioning that some residual risk remains as Israel ramps up operations against Hezbollah in southern Lebanon and Hamas in Gaza.