Oil prices settle lower ahead of fresh update on US supplies

Investing.com-- Oil prices settled lower Tuesday as investors awaited fresh updates on weekly crude inventories amid ongoing worries about the impact of higher for longer U.S. interest rates on oil demand and uncertainty in the Middle East.

At 14:30 ET (18:30 GMT), Brent oil futures fell 1% to $82.88 a barrel, while West Texas Intermediate crude futures fell 0.7% to $79.26 a barrel.

Weekly crude supplies update eyed

The fall in oil prices comes ahead of U.S. crude inventory data from the American Petroleum Institute later Tuesday as well as a further report from EIA due Wednesday.

Crude inventories fell by much more than expected in the week ended May 9, data last week showed, fueling hopes that demand is started to gather pace ahead of the summer driving season.

US rate fears cloud demand outlook

Fears of high-for-longer U.S. rates were a key point of pressure for crude markets, after a string of Fed officials warned of such a scenario amid sticky inflation.

Vice Chair Philip Jefferson said on Monday that it was too early to tell if the slowdown is "long lasting," and Vice Chair Michael Barr noted that restrictive policy needs more time, dulling hopes for early cuts.

There are more Fed speakers to digest Tuesday, including Barr once more, as well as FOMC members Thomas Barkin, John Williams and Raphael Bostic, ahead of the release of the minutes of the Fed’s late-April meeting on Wednesday.

High rates are expected to dull activity in the largest economy in the world, likely hitting crude demand, while also limiting money for investment and economic growth, which usually support oil demand.

The International Energy Agency last week trimmed its outlook for crude demand this year, citing concerns over weaker economic conditions due to pressure from interest rates.

On the flip side, the Organization of Petroleum Exporting Countries maintained its demand forecast, citing strength in top exporter China.

China has been a point of confidence for oil demand, especially as Beijing rolled out a string of stimulus measures in recent weeks to support growth.

Political uncertainty in Middle East

Iranian President Ebrahim Raisi, who was seen as a successor to Supreme Leader Ayatollah Ali Khamenei, was killed in a helicopter crash over the weekend, while there are concerns over the health of Saudi King Salman bin Abdulaziz after Crown Prince Mohammed Bin Salman deferred a trip to Japan.

While these events have not had an impact on supplies yet, they have created a degree of political uncertainty in two major oil-producing countries.

US to sell 1M barrels of gasoline to lower prices

The Biden administration is set to sell 1 million barrels of gasoline from strategic reserves held in the Northeast to lower gas prices ahead of the summer driving season. Gasoline RBOB Futures fell about 1% on the day.

OPEC meeting awaited for more cues

Oil markets were also awaiting an OPEC meeting in June, where the cartel, along with its allies including Russia, will discuss output policy, including whether to extend the voluntary supply cuts of 2.2 million barrels per day from mainly Saudi Arabia.

The group, known as OPEC+, could well extend some voluntary cuts past their initial June-end deadline if demand fails to pick up.

"As the market waits for clarity from OPEC+ on its output policy for the second half of the year, there are some signs of weakness in the market," said analysts at ING, in a note.

"Refinery margins have been trending lower for some time, raising the prospect of cuts in refinery runs, particularly in Asia. In addition, the physical crude market is also weaker."

(Peter Nurse, Ambar Warrick contributed to this article.)

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