Oil Prices Fall on Rate Hike Concerns, EIA Data Provides Aid

Oil prices edged lower in early trade on Friday as a possibly extended period of higher interest rates in the US and Asia weighed on markets, although a US stockpile draw kept losses in check.

Brent crude oil futures expiring in August slipped 0.08% to $85.64 per barrel after reaching its highest since May of $85.89 in the previous session. The US West Texas Intermediate (WTI) crude futures tumbled 0.11% to $81.20 per barrel.

Both benchmarks stayed above the $ 80-per-barrel threshold on Thursday due to the escalation of the Middle East tensions, with Israeli military forces pushing further into the Gazan city of Rafah, which is deemed the last stronghold of the Iran-backed Palestinian rebels.

Rate Hike Prospect Weakens Oil, Inventory Draw Curbs Decline

Interest rates in Japan may see another hike this coming months after the country’s core consumer price index (CPI) data presented on Friday an increase of 2.5% from the year prior in May.

The Bank of Japan (BOJ) still sees that they are far from achieving their 2% inflation target, and another rate hike remains on the table should the yen’s ongoing decline continue to drive inflation.

The same sentiment was echoed in the US, as a reading on Thursday showed jobless claims in the country falling 5,000 to 238,000 in the week ending June 14 from a ten-month high of 243,000 posted the week earlier, signaling businesses’ reluctance to carry out significant workforce cuts.

The continued strength in the US labor market maintains a strong case for the Federal Reserve to keep interest rates higher for longer. On average, employers have added 248,000 positions per month this year, while unemployment stayed low at 4.0%.

Lower interest rates could help crude prices, which have been weakened this year by soft demand worldwide. A reduction from the Fed would lower borrowing costs in the world’s largest economy, improving oil’s appeal as output rises.

Oil prices received some aid from the Energy Information Administration (EIA) on Friday after it reported that US crude inventories dropped 2.5 million barrels last week to 457.1 million barrels, more than analysts’ forecasts of a 2.2 million-barrel fall.

Gasoline inventories also shed 2.3 million barrels to 231.2 million barrels, compared with the 600,000-barrel surge expected.

On the other hand, US crude stockpiles at the key Cushing, Oklahoma storage hub climbed 307,000 barrels, according to the EIA.