Oil prices fell in Asia as Federal Reserve statements reinforced expectations that interest rates will remain high for longer. That view will be tested by a highly anticipated U.S. inflation report later in the day.
Markets awaiting an OPEC+ decision on output cuts over the weekend were weighed down by a surprise rise in U.S. gasoline stocks in overnight trade.
Brent futures fell 3 cents, or 0.04%, to $81.83 a barrel by 0601 GMT, while WTI crude was down 10 cents, or 0.13%, at $77.81.
Despite the recent easing, the Fed remains concerned about upside risks to inflation and has warned that the U.S. central bank should be flexible and “keep all options on the table” as it monitors data and determines how to respond. The view is that it is too early to consider rate cuts.
The Fed’s April report on personal consumption expenditures (PCE), its preferred inflation index, is due later in the day.
The oil market has been under pressure in recent weeks because of the possibility of U.S. borrowing costs remaining high for longer, potentially tying up funds and hurting crude consumption.
Meanwhile, according to the Energy Information Administration (EIA) U.S. crude inventories fell by 4.2 million barrels to 454.7 million barrels in the week ending May 24 beyond the survey expectations of a 1.9 million barrel drop.
By the way, U.S. gasoline inventories rose on expectations of higher demand ahead of the long Memorial Day weekend that marks the start of the summer driving season. Inventories rose by 2 million barrels during the week to 228.8 million barrels according to the EIA, compared with expectations of a 400,000 barrel draw.
Meanwhile, three sources familiar with OPEC+ talks said on Thursday that the group is working on a complex deal to be agreed upon at its meeting on Sunday, that may extend some of its cuts into 2025.
A major driver for oil prices will revolve around the OPEC+ meeting this weekend. More cuts are unlikely and would come as a major surprise if they do.
The Organization of the Petroleum Exporting Countries, known as OPEC+, and allies led by Russia, are currently cutting production by 5.86 million barrels per day, or about 5.7% of global demand.
