Oil falls on the prospect of higher US rates for longer, a stronger dollar

By Laila Kearney

NEW YORK (Reuters) – Oil prices fell nearly $1 a barrel on Friday as comments from U.S. central bank officials pointed to higher interest rates for longer, which could dampen demand from the world’s biggest crude consumers .

Brent crude futures settled at $82.79 a barrel, down $1.09, or 1.3%. U.S. West Texas Intermediate crude settled at $78.26 a barrel, down $1.00, or 1.3%.

For the week, Brent lost 0.2%, while WTI gained 0.2%.

Dallas Federal Reserve President Lorie Logan said Friday it was unclear whether monetary policy had been tight enough to bring inflation down to the U.S. central bank’s 2 percent target.

Higher interest rates typically slow economic activity and weaken demand for oil.

Atlanta Fed President Raphael Bostic also told Reuters he believed inflation could slow under current monetary policy, allowing the central bank to begin cutting its policy rate in 2024 – albeit perhaps by only a quarter of a point percentage and not until the last months of the year.

“The two Fed speakers certainly seemed to question the prospect of rate cuts,” said John Kilduff, partner at Again Capital.

The US dollar strengthened after comments from Fed officials, making greenback-denominated goods more expensive for buyers using other currencies. Higher interest rates for longer in the US could also dampen demand.

Oil prices were also under pressure from rising U.S. fuel inventories heading into the usually robust summer season, said Jim Ritterbusch of Ritterbusch and Associates.

“Given the price declines over the past month and weaker-than-expected demand trends for US gasoline and diesel, some demand adjustment would seem likely,” Ritterbusch said.

Next week, US inflation data could influence the Fed’s rate decisions.

Oil received little support from U.S. rigs, a gauge of future supply, despite data from energy services firm Baker Hughes showing the oil rig count fell by three to 496 this week, the most lowest level since November. (RIG/U)

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Meanwhile, money managers trimmed their net long positions in U.S. oil futures and options in the week to May 7 by 56,517 contracts to 82,697, the U.S. Commodity Futures Trading Commission said.

Data on Thursday showing that China imported more oil in April than in the same month last year also helped keep oil prices from falling. China’s exports and imports returned to growth in April after contracting the previous month.

Meanwhile, the European Central Bank looks increasingly likely to start cutting interest rates in June.

In Europe, a Ukrainian drone strike set fire to an oil refinery in Russia’s Kaluga region, state news agency RIA said on Friday, the latest salvo from Kiev in what has become a series of “tit-for- tat” on the energy infrastructure.

The conflict in the Middle East also continues after Israeli forces shelled areas of the southern Gaza city of Rafah on Thursday, according to Palestinian residents, following a lack of progress in the latest round of negotiations to end hostilities in Gaza.

(Reporting by Laila Kearney; Additional reporting by Natalie Grover in London, Katya Golubkova in Tokyo and Sudarshan Varadhan in Singapore; Editing by Marguerita Choy, David Gregorio, Nick Macfie and Jonathan Oatis)