Oil slips for third straight session on higher US Fed rate outlook, weaker demand; Brent remains at $82/bbl

Oil prices fell nearly 1 percent on Wednesday, retreating for a third straight day on expectations that U.S. interest rate cuts could be delayed due to sustained inflation, a move that could weaken oil demand.

Brent crude futures were down 78 cents, or 0.94%, at $82.10 a barrel, while U.S. West Texas Intermediate (WTI) crude was down 74 cents, or 0.94%, to $78.92 at 11:53 am EDT (1553 GMT). Both benchmarks were down about 1 percent on Tuesday.

Fed policymakers said on Tuesday that the US central bank should wait a few more months to ensure that inflation is indeed back on track to its 2% target before cutting rates.

Investors await minutes from the Fed’s latest policy meeting on Wednesday.

“The minutes of the Federal Open Market Committee (FOMC) will be watched for the Fed’s assessment of bumpy first-quarter inflation and indications of the timing and extent of potential rate cuts in 2024,” ANZ analysts said in a note report.

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

The US Energy Information Administration said on Wednesday that US crude oil inventories rose by 1.8 million barrels in the week ended May 17. That compares with a draw of 2.5 million barrels expected by analysts in a Reuters poll and a rise of 2.48 million barrels shown in data from the American Petroleum Institute (API), an industry group. (EIA/S) (EIA/S)

“The report was bearish, with a rise in total oil stocks,” said UBS analyst Giovanni Staunovo.

However, gasoline stocks, which fell more than expected, signaled strong implied demand and pared some losses earlier in the day.

Crude oil markets have been pressured by weakening fundamentals, with OPEC likely to extend production cuts at its June meeting to support prices, according to Ole Hansen, Saxo’s head of commodity strategy.

Physical crude oil markets weakened. In another sign that concerns about tight prompt supply are easing, Brent’s first-month premium over the second, known as backwardation, is near its lowest since January.

“The view on the fundamental outlook remains bleak,” said Tamas Varga of oil broker PVM.

(Reporting by Nicole Jao; Additional reporting by Alex Lawler, Deep Vakil and Sudarshan Varadhan; Editing by Jan Harvey, Will Dunham and Mark Potter)