Oil futures: Brent eases as Fed, ECB dampen hopes on early rate cuts

Quantum Commodity Intelligence – Crude oil futures Wednesday were sliding lower, with economic woes and a slower pace of rate cuts getting the better of shipping turmoil in and around the Red Sea.

Front-month Mar24 ICE Brent futures were trading at $77.10/b (1800 GMT), compared to the day's range of $76.50-$77.98/b Tuesday's settle of $78.29/b.

At the same time Feb24 NYMEX WTI was trading $71.61/b, versus Tuesday's settle of $72.40/b, while Mar24 contract was trading $71.62/b.

Prices were given a lift in the previous session after Shell suspended indefinitely shipping journeys via the Red Sea, but the rally proved only brief as oil futures took a downturn amid the overall decline in risk sentiment and a higher US dollar after comments from central bank officials.

Global risk appetite took a hit after comments from Federal Reserve Governor Christopher Waller on Tuesday, dampening expectations for an early cut in interest rates this year, echoing comments from ECB counterparts at Davos this week.

"When the time is right to begin lowering rates, I believe it can and should be lowered methodically and carefully," said Waller. "I see no reason to move as quickly or cut as rapidly as in the past."

ECB President Christine Lagarde told Bloomberg TV in Davos Wednesday that it would be in the "late spring" when the ECB has sufficient data to determine the 2024 inflation prognosis, but added that aggressive rate-cut bets do not help the ECB in its battle against inflation. 

UK inflation also remained stubbornly high with December’s CPI print at 4% compared to the previous month's 3.9%, a blow to the Bank of England's 2% target.

The higher-for-longer rate outlook was enough to lift the Dollar Index to five-week highs of around 103.50 points this week, making dollar-denominated oil imports more expensive.

Reliance and Adnoc were also reported to be among the latest batch of operators to divert tankers away from the Red Sea as Houthi attacks continued this week, while reports that the European Union had agreed to move ahead with plans to establish a new naval operation in the Red Sea did little to provide assurances to the shipping community.

Meanwhile, some insurance underwriters were said to be declining business from vessels with US and UK connections, either operated by or sailing to, following strikes against Houthi targets in Yemen last week.