Oil prices fall on fears that high US interest rates will depress demand

By Yuka Obayashi

TOKYO (Reuters) – Oil prices fell in early Asian trading on Tuesday as investors forecast that higher U.S. inflation and interest rates will depress industrial and consumer demand.

Brent crude futures fell 12 cents, or 0.1%, to $83.34 a barrel by 0041 GMT. West Texas Intermediate (WTI) crude oil fell 8 cents, or 0.1%, to $79.72 a barrel.

Both benchmarks fell less than 1% on Monday, with U.S. Federal Reserve officials saying they were awaiting further signs of slowing inflation before considering interest rate cuts.

“Fears of weaker demand drove the selling as the prospect of a Fed rate cut became more distant,” said analyst Toshitaka Tazawa of Fujitomi Securities.

Fed Vice Chairman Philip Jefferson said on Monday it was too early to say whether the slowdown in inflation is “lasting,” while Vice Chairman Michael Barr said tight policy needs more time. Atlanta Fed President Raphael Bostic said it will “take a while” for the central bank to be confident that the slowdown in price growth is sustainable.

Lower interest rates reduce borrowing costs, freeing up funds that could boost economic growth and oil demand.

Global physical crude oil markets are weakening due to weak refinery demand and ample supply, traders and analysts told Reuters, which could mean further weakness for benchmark oil futures.

On the other hand, the market seemed little affected by political uncertainty in two of the main oil producing countries.

Iranian President Ebrahim Raisi, a hard-liner and potential successor to Supreme Leader Ayatollah Ali Khamenei, died in a helicopter crash, while Saudi Arabia’s Crown Prince Mohammed Bin Salman postponed a trip to Japan because of his son’s health. father, the king.

“The death of the Iranian president and the health problem of the Saudi king do not appear to be affecting the market much, as it is not clear whether they will have an immediate impact on energy policy,” said Tazawa of Fujitomi.

Investors are focusing on supplies from the Organization of the Petroleum Exporting Countries and its affiliates, known together as OPEC+. They are scheduled to meet on June 1 to define production policy, including the possibility of extending some members’ voluntary cuts of 2.2 million barrels a day.

OPEC+ could extend some voluntary production cuts if demand does not rise, people with knowledge of the matter told Reuters.

(Reporting by Yuka Obayashi; Editing by Christopher Cushing)