Oil steady as investors weigh U.S. rate fears, firmer seasonal demand


By Jeslyn Lerh

SINGAPORE (Reuters) – Oil prices were stable on Friday as investors considered the latest comments from the U.S. Federal Reserve on interest rates amid sticky inflation, while signs of firming seasonal U.S. fuel demand lent support.

futures rose 5 cents to $81.41 a barrel by 0640 GMT, while U.S. West Texas Intermediate (WTI) crude futures were up 2 cents at $76.89.

Both benchmarks settled at multi-month lows on Thursday, with Brent crude futures closing at their weakest since February and futures hitting a three-month low.

Brent futures were headed for a weekly decline of more than 3%, and WTI futures were poised for a slide of nearly 4% from last week, as ongoing macroeconomic constraints in the U.S. held prices in the balance.

“The backdrop of ‘possibly higher-for-longer rates’ weighed significantly on oil prices this week,” said Priyanka Sachdeva, a senior market analyst at Phillip Nova.

Minutes released on Wednesday from the Fed’s latest policy meeting showed policymakers questioning whether current interest rates are high enough to tame stubborn inflation.

Some officials said they would be willing to hike borrowing costs again if inflation surged. Fed Chair Jerome Powell and other policymakers, however, have since said they feel further rate hikes are unlikely.

Higher rates could slow economic growth and crimp fuel demand.

Meanwhile, strengthening U.S. gasoline demand was helping to stabilise prices ahead of the Memorial Day holiday weekend, which is considered the start of the U.S. summer driving season.

Gasoline demand in the U.S. reached its highest level since November, the Energy Information Administration (EIA) said on Wednesday. That helped support the market as U.S. drivers account for around a tenth of global oil demand, “making the upcoming driving season a pillar of the recovery in global demand growth,” ANZ analysts said in a note.

All eyes are now on the Organization of the Petroleum Exporting Countries and its allies, together called OPEC+, and their meeting on June 1 to discuss whether to extend voluntary oil output cuts of 2.2 million barrels per day.

© Reuters. FILE PHOTO: A tug boat pushes an oil barge through New York Harbor in New York City, U.S., May 24, 2022. REUTERS/Brendan McDermid/File Photo

“The market is also tentative about taking an aggressive positioning ahead of next week’s OPEC meeting, where supply policy will be discussed,” the ANZ analysts said.

(This story has been corrected to clarify that Brent closed at their weakest since February, not January, in paragraph 3)