Oil slips as higher inflation bodes ill for rate cuts

London — Oil prices fell on Monday, extending losses on market views that higher-than-expected inflation could delay cuts to high interest rates that have been capping growth in global fuel demand.

Brent crude futures fell 39c, or 0.5%, to $81.23 a barrel by 10.01am GMT. US West Texas Intermediate crude futures (WTI) were down 34c, or 0.4%, at $76.15.

The dip extended losses registered last week, when Brent lost about 2% and WTI fell more than 3% on signs that the U.S. Federal Reserve is in no rush to cut interest rates.

Sentiment appears focused on higher-for-longer interest rate expectations that lifted the U.S. dollar and pressured commodity prices, said independent analyst Tina Teng.

A stronger dollar makes oil more expensive for buyers holding other currencies.

Oil prices have been trading between $70 and $90 a barrel since November as rising US supply and concern over weak Chinese demand offset Opec+ supply cuts despite two wars raging in Ukraine and Gaza.

As the Israel-Hamas conflict continues in the Middle East, White House national security adviser Jake Sullivan told CNN on Sunday that negotiators for the US, Egypt, Qatar and Israel had agreed on the basic contours of a hostage deal during talks in Paris but are still in negotiations.

The geopolitical risk premium on Brent crude from by Yemeni Houthis on ships in the Red Sea remained modest at only a $2 a barrel, Goldman Sachs analysts said in a note.

However, the bank has raised its summer peak price projection to $87 a barrel, up from $85, after Red Sea disruptions have driven larger than expected draws in stocks held by developed countries.

Goldman Sachs still expects oil demand to grow by 1.5-million barrels per day in 2024 but has cut its forecast for China while raising projections for the United States and India. 

Reuters