Oil prices were steady on Friday, but were headed for steep weekly losses as concerns over persistent inflation and high interest rates fueled doubts about the durability of oil demand this year.
Brent crude oil futures for July delivery fell 0.1 percent to $81.31 per barrel, while West Texas Intermediate (WTI) crude futures declined 0.1 percent to $76.81 per barrel as of 21:02 ET (01:02 GMT). Brent was at its weakest level in two months, while WTI reached a three-month low.
Both oil contracts were poised to lose over 4 percent this week, pressured primarily by worries about stubborn U.S. inflation and the prospect of interest rates staying elevated for an extended period.
Fed signals heighten worries
A series of signals from the Federal Reserve reflected growing unease among policymakers that inflation will be slow to reach the central bank’s 2 percent annual target – a scenario that is expected to prompt the Fed to maintain a restrictive monetary policy stance.
Traders scale back rate cut bets
Some Fed officials were even seen raising the possibility of additional rate hikes to rein in persistent inflation. This caused traders to sharply scale back bets on a rate cut in September, with the CME Fedwatch tool now indicating an almost equal probability of a rate cut or a hold.
Dollar strength and growth concerns weigh on oil
The stronger dollar, which was boosted by the rate hike concerns, also weighed on oil markets. Fears that the pressure from high interest rates will constrain economic growth in the coming months and keep oil demand subdued were also a factor.
Read more: Oil prices dip amid concerns over prolonged high U.S. rates, weaker demand
Summer driving season to support demand
However, U.S. oil demand is expected to pick up in the coming weeks with the start of the peak summer driving season. The Memorial Day weekend holiday typically marks the beginning of this period, with gasoline demand already seen rising in the world’s largest fuel consumer.
Upcoming OPEC+ meeting in focus
Investors were now turning their attention to an upcoming meeting of the Organization of the Petroleum Exporting Countries and its allies (OPEC+), scheduled for June 1.
Potential production cut extension and market tightness
The focus will be on whether the producer group will extend its current production cuts beyond the end-June deadline. Any further extension in output reductions is expected to support crude prices by tightening market supply.
But the overall tightness of the oil market this year remains uncertain, especially as U.S. crude production has remained at record highs. Additionally, some easing of tensions in the Middle East has also pointed to fewer potential supply disruptions for crude.
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