Oil prices fell on Tuesday, with investors anticipating lingering U.S. inflation and higher interest rates to depress consumer and industrial demand. Brent crude futures fell 44 cents, or 0.53 percent, to $83.27 a barrel by 03:13 GMT. U.S. West Texas Intermediate crude (WTI) slipped 51 cents, or 0.64 percent, to $79.29 a barrel.
Worries about demand
Both benchmarks fell less than 1 percent on Monday as U.S. Federal Reserve officials said they were awaiting more signs of slowing inflation before considering interest rate cuts. “Fears of weaker demand led to selling as the prospect of Fed rate cut became more distant,” said analyst Toshitaka Tazawa at Fujitomi Securities.
Read more: Oil prices edge higher ahead of Fed cues, improving demand
Fed’s stance on inflation
Fed Vice Chair Philip Jefferson said on Monday it was too early to tell whether the inflation slowdown is “long lasting,” while Vice Chair Michael Barr said restrictive policy needs more time. Atlanta Fed President Raphael Bostic said it will “take a while” for the central bank to be confident that a price growth slowdown is sustainable.
Impact of lower interest rates
Lower interest rates reduce borrowing costs, freeing up funds that could boost economic growth and demand for oil.
On the other hand, the market appeared little affected by political uncertainty in two major oil-producing countries. “While there has been an upmove over some uncertainty in Iran, prices have since pared back some gains, as investors price for the status-quo in terms of policies for now and that any wider regional conflict remains off the table,” IG Market Strategist Yeap Jun Rong said in an email to Reuters.
OPEC+ meeting on the horizon
Investors are focusing on supply from the Organization of the Petroleum Exporting Countries and its affiliates, together known as OPEC+. They are scheduled to meet on June 1 to set output policy, including whether to extend some members’ 2.2 million barrels per day of voluntary cuts.
“Prices remain in wait for a catalyst to drive a breakout of the current range, with eyes still on any geopolitical developments, along with oil inventories data this week,” Yeap said. OPEC+ could extend some voluntary output cuts if demand fails to pick up, people with knowledge of the matter previously told Reuters.
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