HOUSTON: Oil prices declined by more than 1% on Tuesday with lingering US inflation poised to keep interest rates higher for longer, potentially dampening consumer demand at the pump.
Brent crude futures fell by $1.21, or 1.45%, to $82.50 a barrel by 12:25 a.m. ET (1625 GMT). US West Texas Intermediate crude (WTI) futures for June, which are set to expire on Tuesday, slipped by $1.26, or 1.58%, to $78.54.
The more active July contract lost $1.09, or 1.37%, to $78.21.
Higher borrowing costs tie up funds in a blow to economic growth and demand for crude, as well as pressuring consumer demand at the pump.
“The market is very focused on gasoline demand in the US because there are signs that consumers are cutting back because of inflation. Unless that turns around, the market is suggesting things could be a little bleak”, said Phil Flynn, an analyst at Price Futures Group.
Despite the run up to this weekend’s Memorial Day holiday, which kicks off the US peak summer driving season, retail gasoline prices fell for the fourth consecutive week to $3.58 per gallon on Monday, the Energy Information Administration (EIA) said in its gasoline and diesel fuel update.
However, in a bid to ensure sufficient supply flows to the northeast, the US will sell the nearly 1 million barrels of gasoline in a reserve in northeastern states, with bids due on May 28, the Department of Energy said on Tuesday.
Investors are awaiting minutes from the Fed’s last policy meeting due on Wednesday, as well as weekly US oil inventory data. Industry oil data is due at 4:30 p.m. ET (2030 GMT) on Tuesday, followed by the EIA’s report on Wednesday.
“There is nothing in the market right now that is pushing prices higher. If we see a little bit of a stock draw tomorrow that may help push prices back up into the $78.50-$80 per barrel range,” said Tim Snyder, economist at Matador Economics.
Meanwhile, Fed officials’ comments pointed to interest rates staying higher for longer than markets previously expected.
Two Federal Reserve policymakers on Tuesday said it was prudent for the US central bank to wait several more months to ensure that inflation really is back on a path to the 2% target before commencing interest rate cuts.
“In the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy,” Fed Governor Christopher Waller said in a speech to the Peterson Institute for International Economics in Washington.