By Alex Lawler, Swati Verma3 Min ReadLONDON (Reuters) -Oil slipped on Monday as looming increases to interest rates by major central banks and signs of strong Russian exports offset rising Middle East tension over a drone attack in Iran and hopes of higher Chinese demand.FILE PHOTO: Pump jacks operate at sunset in an oil field in Midland, Texas U.S. August 22, 2018. REUTERS/Nick Oxford/File PhotoInvestors expect the U.S. Federal Reserve to raise rates by 25 basis points on Wednesday, followed the day after by half-point increases by the Bank of England and European Central Bank. Any deviation from that script would be a shock.“The risk-off cautious mood in the market ahead of the central bank meetings is hurting risk assets, including oil,” said City Index analyst Fiona Cincotta.Brent crude fell 27 cents, or 0.3%, to $86.39 a barrel by 1325 GMT while U.S. West Texas Intermediate crude dropped 30 cents, or 0.4%, to $79.38.The market also came under pressure from indications of strong Russian supply despite an EU ban and G7 price cap imposed over its invasion of Ukraine. Both oil benchmarks last week registered their first weekly loss in three.Besides the central bank meetings, a gathering on Wednesday of key ministers from the OPEC+ fgroup comprising the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia will also be in focus. The OPEC+ panel meeting on Wednesday is unlikely to tweak oil output policy.“The boat is not really in stormy seas right now. So why rock something that’s not moving about as it is,” said Ole Hansen, head of commodity strategy at Saxo Bank.OPEC+ is unlikely to tweak oil policy but could “surprise markets with a small cut”, oil broker PVM said.Earlier on Monday, oil prices rose on tensions in the Middle East after a drone attack in Iran.While it is not clear yet what’s happening in Iran, any escalation there has the potential to disrupt crude flow, said Stefano Grasso, a senior portfolio manager at 8VantEdge in Singapore.Hopes of a rise in Chinese demand have boosted oil in 2023. The world’s biggest crude importer pledged over the weekend to promote a consumption recovery that would support demand.Reporting by Alex LawlerAdditional reporting by Florence Tan and Emily ChowEditing by Louise Heavens and David GoodmanOur Standards: The Thomson Reuters Trust Principles.
Oil prices retreated lower on Monday as the prospect of rising interest rates and its effect on currency markets caused investors to shy away from commodity investments.
At the same time, strong flows of crude oil from Russia had a dampening effect on energy prices.
Brent Crude, the international benchmark, was trading at $61.84 per barrel, down 0.3% while U.S. crude was also down 0.3% at $55.29.
The Federal Reserve is widely expected to raise interest rates at its meeting later this week, likely weakening demand for commodities and the US dollar, which has depreciated against the euro for four straight days.
At the same time, strong flows of Russian crude continue to hit the market. Official figures show that Russian exports for October rose to a six year high of 5.35 million barrels per day, leaving the market oversupplied.
The Organization of the Petroleum Exporting Countries, OPEC, is expected to remain exempt from production cuts when the group meets in Vienna later this month to discuss output quotas. Russia is not a member of the cartel and is not subject to production cuts.
With fundamentals looking weak and the prospect of rising costs of borrowing, oil prices are likely to remain under pressure.