Oil prices drop on US demand concerns

Oil prices experienced a slight decline on Thursday due to concerns over weakening fuel demand in the United States, following a slower economic growth rate in the first quarter. Brent crude futures dropped by 0.3% to $87.73 a barrel, while U.S. West Texas Intermediate crude futures decreased by 0.5% to $82.41.

The U.S. economy showed a more significant slowdown than anticipated in the first quarter, although rising inflation indicated that the Federal Reserve is unlikely to cut interest rates before September. Additionally, U.S. gasoline stockpiles fell below expectations, while distillate stockpiles increased contrary to forecasts, signaling a potential decline in demand.

Despite a sharp unexpected drop in U.S. crude inventories last week, concerns about apparent demand persist. This unease is exacerbated by cooling U.S. business activity in April and the likelihood of the Fed delaying interest rate cuts due to stronger-than-expected inflation and employment data.

Market sentiment has shifted towards global economic challenges over geopolitical tensions, leading to a dip in benchmark prices. The conflict between Israel and Hamas in the Gaza Strip may escalate, potentially disrupting oil supplies if Israel initiates an assault on Rafah.

Although oil supply remains unaffected for now, the risk of a broader conflict looms. Traders are cautious about pricing in geopolitical risks, especially as Israel intensifies operations against Hezbollah in southern Lebanon and Hamas in Gaza.