Oil prices traded lower on Tuesday, as investors awaited key U.S. inflation data and the outcome of the Federal Reserve‘s policy meeting. These events were expected to provide more clarity on the trajectory of inflation and its potential impact on fuel demand.
Brent crude futures fell 11 cents, or 0.13 percent, to $81.52 per barrel by 04:33 GMT, while U.S. West Texas Intermediate (WTI) crude futures slipped 3 cents, or 0.04 percent, to $77.71.
Prices had climbed about 3 percent to a one-week high on Monday, driven by expectations of increased fuel demand during the Northern Hemisphere summer vacation season. However, some analysts cautioned that this gain might be short-lived, as the prospect of higher interest rates remained a concern.
Inflation data and Fed policy meeting in focus
The release of U.S. consumer price index data for May and the conclusion of the Fed’s two-day policy meeting are both scheduled for Wednesday. IG market strategist Yeap Jun Rong noted that “more conviction may be needed in oil prices for a more sustained recovery with a move above the $83.00 level, given that the broader trend for oil prices still leans on the downside with a series of higher highs since April.”
Decline in Saudi exports to China, higher refinery margins
A decline in Saudi crude exports to China for a third straight month also put further pressure on oil prices. However, higher refinery margins and the potential for the United States to boost crude purchases for its strategic petroleum reserve provided some support.
Read more: Oil prices stabilize as traders await OPEC meeting, Fed cues
Prospect of U.S. strategic reserve purchases
Profit margins for a typical Singapore refinery that processes Dubai crude have averaged around $4 a barrel in the past three trading sessions, up from the May average of $2.56 a barrel, LSEG pricing data showed. The prospect of the U.S. moving to build up its strategic reserves if WTI stays below $79 per barrel also helped to support oil prices, according to Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities.
U.S. Energy Secretary Jennifer Granholm told Reuters last week that the U.S. could hasten the rate of replenishing the Strategic Petroleum Reserve as maintenance on the stockpile is completed by the end of the year, and the government wants to buy back oil at about $79 a barrel.
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