Previous Next

Oil dips amid interest rate outlook, Mideast tension

Oil prices slipped marginally on Monday amid speculation that stronger than expected inflation could delay cuts to high interest rates that have been capping growth in global fuel demand. Brent crude futures were down 20 cents, or 0.3per cent, to $81.42 a barrel.

United States (U.S.) West Texas Intermediate crude futures (WTI) were down 13 cents, or 0.2per cent, at $76.36. The dip extended losses registered last week, when Brent lost about two per cent and WTI fell more than three per cent on signs that the U.S. Federal Reserve is in no rush to cut interest rates.

“With inflation stubbornly hovering well above the Fed’s two per cent target and the U.S. economy showing a resilience few had predicted, the markets moved to price in a scenario where interest rates remain high for longer,” said ActivTrades senior analyst Ricardo Evangelista. Oil prices have been trading between $70 and $90 a barrel since November as rising U.S. supply and concern over weak Chinese demand offset OPEC+ supply cuts despite wars raging in Ukraine and Gaza.

As the Israel-Hamas conflict continues in the Middle East, White House national security adviser Jake Sullivan on Sunday said negotiators for the U.S, Egypt, Qatar and Israel had agreed on the basic contours of a hostage deal during talks in Paris but were still in negotiations.

The geopolitical risk premium on Brent crude from attacks by Yemeni Houthis on ships in the Red Sea remained modest at only a $2 a barrel, Goldman Sachs analysts said in a note.

However, the bank has raised its summer peak price projection to $87 a barrel, up from $85, after Red Sea disruptions have driven larger than expected draws in stocks held by developed countries. Goldman Sachs still expects oil demand to increase by 1.5 million barrels per day (bpd) in 2024 but has cut its forecast for China while raising projections for the United States and India, according to Reuters.