Oil prices dropped by more than $1 on Tuesday, extending losses on the potential for lingering U.S. inflation to keep interest rates higher for longer, depressing consumer and industrial demand.
Brent crude futures fell by $1.54, or 1.8%, to $82.17 a barrel, while U.S. West Texas Intermediate crude (WTI) futures for June, which are set to expire on Tuesday, slipped by $1.49 cents, or 1.8%, to $78.31. The more active July contract lost $1.55, or 1.9%, to $77.75.
The losses came after U.S. Federal Reserve officials said they were awaiting more signs of slowing inflation before considering interest rate cuts. Fed Vice Chair Philip Jefferson said it was too early to tell whether the inflation slowdown is long-lasting, while Vice Chair Michael Barr and Atlanta Fed President Raphael Bostic indicated that restrictive policy needs more time.
“Fears of weaker demand led to selling as the prospect of a Fed rate cut became more distant,” said analyst Toshitaka Tazawa at Fujitomi Securities. Higher borrowing costs tie up funds, which could impact economic growth and demand for crude.
The market appeared largely unaffected by political uncertainty in two major oil-producing countries, Iran and Saudi Arabia, as the focus remained on the potential for higher interest rates.
Meanwhile, the structure of the Brent contract is weakening, indicating a softer market and strong supply. Investors are also closely watching the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, who are scheduled to meet on June 1 to set output policy, including whether to extend some members’ voluntary supply cuts.