By Scott DiSavino
NEW YORK (Reuters) – Oil prices fell less than 1% on Monday after U.S. Federal Reserve officials said they were waiting for more signs that inflation was easing before the central bank would cut interest rates.
Two top Fed officials said they are not yet ready to say inflation trends are returning sustainably to the central bank’s 2% target after data last week showed a welcome easing of consumer price pressures in April.
Lower interest rates would lower borrowing costs for consumers and businesses, which could boost economic growth and oil demand.
futures fell 27 cents, or 0.3%, to settle at $83.71 a barrel, while U.S. West Texas Intermediate (WTI) crude fell 26 cents, or 0.3%, to $79.80.
That kept Brent’s premium over WTI near its lowest level since March for the third day in a row. A lower premium makes it less profitable for energy companies to send ships to the US to pick up crude cargo for export. This leaves more oil in the US to be consumed or stored.
The second-month Brent front premium, known in the industry as backwardation, fell to the lowest level since January.
When a market is in backwardation, energy companies are more likely to pull oil from storage and use it now rather than wait for prices to fall in the future. If the market shifts into contango, with future contracts worth more than the first month, energy companies could start stockpiling oil for the future, which could push down prices.
Unaffected by world events
However, the market seemed unfazed by political uncertainty in two major oil-producing countries after Iran’s president died in a helicopter crash and Saudi Arabia’s crown prince postponed a trip to Japan due to the health of his father, the king.
Iran’s oil policy should not be affected by the sudden death of the president because Supreme Leader Ayatollah Ali Khamenei has ultimate power and the final say on all state affairs.
In Saudi Arabia, the market is already accustomed to Crown Prince Mohammed Bin Salman’s leadership in the energy sector, said Saul Kavonic, energy analyst at MST Marquee.
“Continuity in the Saudi strategy is expected regardless of this health issue,” he said.
The Organization of the Petroleum Exporting Countries and its allies, together known as OPEC+, will meet on June 1.
“The market also appears to be becoming increasingly insensitive to developments on the geopolitical front, likely due to the large amount of spare capacity available to OPEC,” said Warren Patterson, head of commodity strategy at ING.
Data showed Saudi Arabia’s exports rose for the second month in a row in March, reaching a nine-month high.
Russia remained China’s top oil supplier for a twelfth month in April, with volumes up 30% from a year earlier as refiners continued to cash in on discounts, while supplies from Saudi Arabia fell by a quarter due to higher prices .
Russian President Vladimir Putin said gas production rose 8% in the first four months of the year, but oil production fell 1.8%, a decline largely due to OPEC+ production cuts -agreements.
Although the Slavyansk oil refinery in Russia’s Krasnodar region was damaged by a drone strike over the weekend, Russia said it had suspended a ban on gasoline exports until June 30. However, the country said it would reimpose the ban in July. August 1 to 31.
