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Oil Prices Stable Amid U.S. Rate Fears and Seasonal Demand Strength

Oil prices held steady on Friday, with investors weighing the latest statements from the U.S. Federal Reserve regarding interest rates amidst persistent inflation concerns. Additionally, signs of strengthening seasonal demand for U.S. fuel provided further support to the market.

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Price Movement:

Brent crude futures edged up by 5 cents to reach $81.41 a barrel, while U.S. West Texas Intermediate (WTI) crude futures saw a modest increase of 2 cents, reaching $76.89 a barrel by 0640 GMT. Both benchmarks had settled at multi-month lows on Thursday, with Brent crude futures closing at their weakest level since January and U.S. crude futures hitting a three-month low.

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Weekly Performance:

Brent futures were on track for a weekly decline of over 3%, while WTI futures were poised for a slide of nearly 4% from the previous week. Ongoing macroeconomic constraints in the U.S. have kept oil prices under pressure.

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Impact of Federal Reserve’s Comments:

The backdrop of concerns over potentially prolonged higher interest rates weighed heavily on oil prices during the week. Minutes released from the Fed’s latest policy meeting revealed discussions among policymakers about the adequacy of current interest rates in addressing stubborn inflation. While some officials expressed readiness to raise borrowing costs if inflationary pressures intensified, Fed Chair Jerome Powell and others have since indicated that further rate hikes are unlikely.

Seasonal Demand Support:

Despite these concerns, strengthening demand for gasoline in the U.S. has helped stabilize oil prices ahead of the Memorial Day holiday weekend, marking the beginning of the U.S. summer driving season. The Energy Information Administration (EIA) reported that U.S. gasoline demand reached its highest level since November. Given that U.S. drivers represent around a tenth of global oil demand, this surge in gasoline demand is seen as a crucial element in the recovery of global demand growth.

OPEC+ Meeting Outlook:

Market focus now shifts to the upcoming meeting of the Organization of the Petroleum Exporting Countries and its allies (OPEC+), scheduled for June 1. Discussions during this meeting will center on whether to extend voluntary oil output cuts of 2.2 million barrels per day. Market sentiment remains cautious ahead of the meeting, with analysts avoiding aggressive positioning until clarity emerges on supply policy.

In summary, oil prices remained stable amidst a backdrop of U.S. rate fears and strengthening seasonal demand, with market participants closely monitoring developments related to interest rates and supply dynamics in the coming days.

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