Oil prices fell on Tuesday as investors awaited US and Chinese CPI data as well as the outcome of the Federal Reserve’s policy meeting to get a clearer scenery of the course of inflation and how it will affect fuel demand.
Brent crude futures were down 13 cents, or 0.16%, at $81.50 a barrel by 0613 GMT, and WTI Crude futures were down 7 cents, or 0.04%, at $77.67.
Prices rose nearly 3% on Monday to a one-week peak, supported by expectations that the Northern Hemisphere summer holiday season will boost fuel demand; some analysts said the gain would be short-lived given the possibility of higher interest rates.
The release of US consumer price index data for May and the Fed’s two-day policy meeting that will end on Wednesday is monitored.
Oil prices need to rise above $83.00 for a more sustained recovery, as the broader trend in oil prices is still trending down despite a series of higher peaks since April.
Investors were also cautious ahead of the release of macroeconomic data from China on Wednesday. The likely negative macro driver for oil prices will be the Chinese inflation data due tomorrow.
The deflationary trend in China’s factory gate prices is expected to slow further, but if the PPI figures disappoint, it is clear that this deflationary risk spiral is entrenched in China, which is likely to generate less oil demand. A reading of minus 2% or much lower on an annual basis would be disappointing.
Meanwhile, Saudi Arabia’s third consecutive month of crude exports to China has also added further pressure on prices.
Some analysts said higher refinery margins are helping support oil prices and there is also the potential for the U.S. to increase its crude purchases for its oil reserves.
If WTI remains below $79, the possibility that the U.S. will increase its strategic reserves in line with its goals will provide support for oil prices.
Energy Secretary Jennifer Granholm said the U.S., which wants to buy back oil at around $79 a barrel, could increase the pace of replenishment of the Strategic Petroleum Reserve in line with its stockpile targets.
