Oil slumps economy amid expectations of continued high interest rates

Oil prices fell after reports from Federal Reserve officials – reinforcing expectations that interest rates will remain higher in the long run, which will become even more evident after the release of long-awaited US inflation data. And then today.

The market – which is awaiting a decision by the OPEC+ alliance to cut production early next week – faced pressure in overnight trade due to a sudden rise in US gasoline stocks.

Brent crude fell 0.2% to $81.72 a barrel – at the time of writing – and US West Texas Intermediate crude fell 0.3% to $77.67.

Dallas Federal Reserve Bank President Lori Logan said she was concerned about the potential upside for inflation despite the recent slowdown, warning that the U.S. central bank should be flexible and keep “all options” as it monitors the data and decides how to respond.

He added during the event, “It’s very important that we don’t commit ourselves to any particular monetary policy path…and I think it’s too early to think about lowering interest rates.”

For his part, Yip Jun Rong, market analyst at IG, said markets were cautious ahead of the release of key US inflation data on Friday.

The April Personal Consumption Expenditure report, the Federal Reserve’s preferred indicator for measuring inflation, is also scheduled to be released later.

Oil markets have been under pressure for the past few weeks due to the possibility of higher long-term borrowing costs in the US, which could hurt crude oil consumption.

U.S. crude inventories fell 4.2 million barrels to 454.7 million barrels in the week ended May 24, the Energy Information Administration said, compared with expectations for a drawdown of 1.9 million barrels in a Reuters poll.

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Meanwhile, gasoline inventories in the U.S. rose, and the Energy Information Administration reported an increase of 2 million barrels for the week to 228.8 million barrels, compared with expectations for a 400,000-barrel decline.

According to three sources familiar with OPEC, the OPEC Plus group is working on a complex deal at its next meeting — next Sunday — to allow some sharp cuts in oil production to extend into 2025. Plus discussions yesterday Thursday.

The current cut in OPEC Plus production – which includes the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia – is estimated at about 5.86 million barrels per day, equivalent to 5.7% of global demand.

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