Oil falls as rate hike looms, and Russian inflows remain strong

  • The US Federal Reserve, the European Central Bank and the Bank of England all saw interest rate hikes this week
  • The OPEC+ committee meeting on Wednesday is unlikely to change policy
  • Oil rose earlier after a drone attack in Iran

LONDON (Reuters) – Oil prices fell on Monday, giving up previous gains, as looming interest rate hikes by major central banks and signs of stronger Russian exports offset rising tensions in the Middle East over a drone attack in Iran and hopes of a boost in Chinese demand. .

Investors expect the Federal Reserve to raise interest rates by 25 basis points on Wednesday, followed the next day by a half-point increase from the Bank of England and the European Central Bank, and any deviation from this scenario would be a shock.

Brent crude fell 29 cents, or 0.3 percent, to $86.37 a barrel by 0910 GMT, while US West Texas Intermediate crude fell 52 cents, or 0.7 percent, to $79.16.

Serena Huang, head of Asia-Pacific analytics at Vortexa, said in an email that oil prices are “likely to be affected by potential interest rate hikes at the next Fed meeting.”

The market was also pressured by indications of Russian supply strength, despite the EU’s embargo and G7 price caps over its invasion of Ukraine. Last week, both oil benchmarks saw their first weekly losses in three.

Besides central bank meetings, Wednesday’s meeting of key ministers from the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, known as OPEC+, will also be a focus.

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Wednesday’s OPEC+ committee meeting is unlikely to lead to an adjustment in oil production policy – although broker PVM said it could surprise with a small cut.

“The upcoming wave of price stimulus is setting the stage for significant swings in oil prices this week,” said Stephen Brennock of PVM. “However, the price is unlikely to drop below $80 and you will struggle to get close to $100.”

Oil rose earlier on Monday amid tensions in the Middle East following a drone attack on oil producer Iran.

Stefano Grasso, a senior portfolio manager at 8VantEdge in Singapore, said that while it was not yet clear what was happening in Iran, any escalation there would likely disrupt the flow of crude.

Hopes of an increase in Chinese demand boosted oil in 2023. The world’s largest importer of crude oil pledged over the weekend to promote a recovery in consumption that would support demand.

Additional reporting by Florence Tan and Emily Chow. Editing by Louise Heavens

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