By Adedapo Adesanya
Oil depreciated on Tuesday as lingering inflation poised to keep interest rates higher for longer and likely weighed on consumer demand at the pump, while little support came from geopolitical risk.
Brent crude futures went down by 83 cents or 1 per cent to $82.88 a barrel and the US West Texas Intermediate (WTI) crude futures slipped by 54 cents or 0.7 per cent to $79.26 per barrel.
Traders are facing higher borrowing costs which are tying up funds in a blow to economic growth and demand for crude, as well as pressuring consumer demand at the pump.
Analysts noted that the market is very focused on demand in the US, the largest oil consumer because there are signs that consumers are cutting back because of inflation.
Expectations are that there will be more travel ahead of the US Memorial Day holiday weekend, which kicks off the US peak summer driving season, however, prices at the pump are down, a sign of weak demand.
However, in a bid to ensure sufficient supply flows to the northeast, the US will sell the nearly 1 million barrels of gasoline in a reserve in northeastern states, with bids due on May 28, the Department of Energy said on Tuesday.
Crude oil inventories in the United States rose this week by 2.48 million barrels for the week ending May 10, according to the American Petroleum Institute (API). For the week prior, the API reported a 3.104-million-barrel dip in crude inventories.
The official data from the US Energy Information Administration (EIA) will be due later on Wednesday. Investors are also awaiting minutes from the US Federal Reserve’s last policy meeting due the same day.
Meanwhile, officials of the US central bank comments pointed to interest rates staying higher for longer than markets previously expected. Two Federal Reserve policymakers on Tuesday said it was prudent for the US apex bank to wait several more months to ensure that inflation is nearing the 2 per cent target before commencing interest rate cuts.
Meanwhile, the economic outlook in Europe is more positive, potentially providing a floor to oil prices with the European Central Bank President (ECB), Ms Christine Lagarde, saying she is confident that euro zone inflation is under control as the impact of the energy crisis and supply-chain bottlenecks fades away, speaking in an interview aired on Tuesday.
The ECB has all but promised a rate cut on June 6, so policymakers have shifted their attention to debating where rates will go thereafter.
On the supply side, a fading geopolitical risk premium from the war in Gaza failed to provide much support.
The market also appeared largely unaffected by the death of Iranian President, Mr Ebrahim Raisi and potential successor to Supreme Leader Ayatollah Ali Khamenei, in a helicopter crash on Sunday.
Modupe Gbadeyanka