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Oil Prices Steady at Multi-Month Lows, Poised for Weekly Losses Amid Rate Fears

Oil prices stabilized on Friday but were on track for significant weekly losses as concerns over persistent inflation and high interest rates cast doubts on the strength of demand for crude this year.

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Current Prices and Trends:

Brent oil futures expiring in July dipped by 0.1% to reach $81.31 a barrel, hovering near a two-month low.

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West Texas Intermediate (WTI) crude futures fell by 0.1% to $76.81 a barrel, at a three-month low.

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Both Brent and WTI contracts were poised to incur weekly losses exceeding 4%.

Factors Contributing to Weekly Losses:

Concerns over stubborn U.S. inflation and the likelihood of prolonged high interest rates have driven market sentiment this week.

Signals from the Federal Reserve have heightened anxieties among policymakers about the pace of inflation reaching the central bank’s 2% annual target, potentially necessitating sustained high interest rates.

Speculation about further rate hikes to address inflationary pressures has led traders to revise expectations for a rate cut in September, with the CME Fedwatch tool indicating nearly equal probabilities of a cut or a hold.

Strengthening of the dollar as a result of rate hike expectations has exerted downward pressure on oil prices, reflecting concerns that high rates could dampen economic growth and oil demand.

Upcoming OPEC+ Meeting:

Attention is now focused on the upcoming meeting of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) scheduled for June 1.

Market participants are keen to observe whether the cartel will extend its ongoing production cuts beyond the end-June deadline.

An extension of production cuts is anticipated to provide support to crude prices by potentially tightening market conditions.

However, uncertainty prevails regarding the extent of market tightness, particularly amidst record-high U.S. crude production and easing tensions in the Middle East, which could lead to fewer disruptions in crude supply.

Outlook:

Despite short-term fluctuations, the overarching influence on oil prices remains tied to developments in monetary policy, inflation dynamics, and global economic trends.

Market participants will closely monitor signals from the Federal Reserve and OPEC+ decisions for further insights into the trajectory of oil prices amid evolving supply-demand dynamics and geopolitical developments.

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