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Oil Prices Inch Upward Amidst Inflation and OPEC Anticipation

Oil prices saw a modest uptick in Asian trading on Monday, showing slight recovery from significant losses incurred last week. Traders remained watchful for signals on U.S. inflation and awaited the upcoming meeting of the Organization of Petroleum Exporting Countries (OPEC).

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Despite the marginal increase, trading activity was anticipated to remain subdued due to market holidays observed in both the U.S. and the UK.

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In the Asian session, Brent oil futures for July delivery edged up by 0.1% to reach $82.22 per barrel, while West Texas Intermediate (WTI) crude futures rose by 0.2% to $77.85 per barrel by 20:41 ET (00:41 GMT).

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Last week, both Brent and WTI contracts experienced declines exceeding 2%, plummeting to levels last seen in February. Concerns over prolonged high interest rates, stemming from fears of inflation, weighed heavily on market sentiment and raised apprehensions about future demand for oil.

The focus of the week remains on obtaining further insights into inflation trends, particularly from the Personal Consumption Expenditures (PCE) price index data, which is closely monitored by the Federal Reserve as a key indicator of inflation.

Last week, warnings from Federal Reserve officials regarding persistent inflationary pressures led to unease among oil traders, prompting adjustments in expectations for interest rate cuts in the near term. Elevated interest rates are feared to dampen economic activity and subsequently impact crude demand in the coming months.

Additionally, unexpected increases in U.S. inventories further weighed on crude prices. However, anticipation of heightened demand during the summer travel season in the largest fuel-consuming nation provides a potential boost to market sentiment.

Looking ahead, oil markets are eagerly anticipating the OPEC+ meeting scheduled for June 2nd. During this meeting, the producer group is expected to deliberate on the extension of ongoing production cuts beyond the end-June deadline. Extended production cuts coupled with potential improvements in demand could lead to tighter oil markets in the short term, providing support for prices.

Over the past year, OPEC’s concerted efforts in implementing production cuts were primarily aimed at stabilizing and supporting crude prices amidst fluctuating market conditions.

While the OPEC anticipates a demand increase of 2.25 million barrels per day this year, the International Energy Agency (IEA) holds a more conservative estimate of demand growth at 1.2 million barrels per day. These differing projections underscore the uncertainties surrounding future oil market dynamics.

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