Oil falls on prospect of higher-for-longer US rates, stronger dollar

NEW YORK – Oil prices fell by nearly USD 1 a barrel on Friday as comments from US central bank officials indicated higher-for-longer interest rates, which could hinder demand from the world’s largest crude consumers.

Brent crude futures settled at USD 82.79 a barrel, down USD 1.09, or 1.3%. US West Texas Intermediate crude settled at USD 78.26 a barrel, down USD 1.00, or 1.3%.

For the week, Brent logged a 0.2% loss, while WTI recorded a rise of 0.2%.

Dallas Federal Reserve President Lorie Logan on Friday said it was unclear whether monetary policy was tight enough to bring down inflation to the US central bank’s 2% goal.

Higher interest rates typically slow economic activity and weaken oil demand.

Atlanta Fed President Raphael Bostic also told Reuters he thought inflation was likely to slow under the current monetary policy, enabling the central bank to begin reducing its policy rate in 2024 – though perhaps by only a quarter of a percentage point and not until the final months of the year.

“The two Fed speakers certainly seemed to put the kibosh on the prospect of rate cuts,” said John Kilduff, a partner at Again Capital.

The US dollar strengthened after the Fed officials’ comments, making greenback-denominated commodities more expensive for buyers using other currencies. Higher-for-longer US interest rates could also dampen demand.

Oil prices were also under pressure from rising US fuel inventories approaching the typically robust summer driving season, said Jim Ritterbusch of Ritterbusch and Associates.

“Given the price decline of the past month and the weaker-than-expected demand trends for US gasoline and diesel, some bearish demand adjustment would appear likely,” Ritterbusch said.

Next week, US inflation data could influence Fed decisions on rates.

Oil drew little support from the US oil rig count, which is an indicator of future supply, despite energy services firm Baker Hughes data showing the number of oil rigs fell by three to 496 this week, their lowest since November.

Money managers, meanwhile, cut their net long US crude futures and options positions in the week to May 7 by 56,517 contracts to 82,697, the US Commodity Futures Trading Commission said.

Data on Thursday showing China imported more oil in April than the same month last year also helped keep oil prices from moving lower. China’s exports and imports returned to growth in April after contracting the previous month.

The European Central Bank, meanwhile, looks increasingly likely to start cutting rates in June.

In Europe, a Ukrainian drone attack set an oil refinery in Russia’s Kaluga region on fire, RIA state news agency reported on Friday, the latest salvo from Kyiv in what has become a series of tit-for-tat attacks on energy infrastructure.

Conflict in the Middle East also continues after Israeli forces bombarded areas of the southern Gaza city of Rafah on Thursday, according to Palestinian residents, after a lack of progress in the latest round of negotiations to halt hostilities in Gaza.

(Reporting by Laila Kearney; Additional reporting by Natalie Grover in London, Katya Golubkova in Tokyo, and Sudarshan Varadhan in Singapore; Editing by Marguerita Choy, David Gregorio, Nick Macfie, and Jonathan Oatis)