Oil is falling as interest rate hikes approach and Russian inflows remain strong

LONDON (Reuters) – Oil prices fell on Monday as interest rate increases by major central banks and signs of stronger Russian exports offset rising tensions in the Middle East over a drone attack in Iran and hopes of a boost in Chinese demand.

Investors expect the US Federal Reserve to raise interest rates by 25 basis points on Wednesday, followed the next day by half-point increases by the Bank of England and the European Central Bank. Any deviation from this text would come as a shock.

“The risk-averse mood in the market ahead of central bank meetings is hurting risk assets, including oil,” said Fiona Cincotta, an analyst at City Index.

Brent crude fell 27 cents, or 0.3 percent, to $86.39 a barrel by 1325 GMT, while US West Texas Intermediate crude fell 30 cents, or 0.4 percent, to $79.38.

The market was also pressured by indications of Russia’s supply strength despite the EU’s embargo and G7 price caps over its invasion of Ukraine. Last week, both oil benchmarks recorded their first weekly loss in three.

Besides central bank meetings, the focus will also be on Wednesday’s meeting of key ministers from the OPEC+ group comprising the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia. The meeting of the OPEC + committee on Wednesday is unlikely to lead to an adjustment in oil production policy.

“The boat isn’t really in stormy seas right now. Why rock something that isn’t moving as it is,” said Ole Hansen, Head of Commodities Strategy at Saxo Bank.

Oil brokerage PVM said it was unlikely that OPEC + would adjust its oil policy, but it might “surprise the markets with a slight cut”.

Earlier on Monday, oil prices rose on tensions in the Middle East after a drone attack in Iran.

Stefano Grasso, a senior portfolio manager at 8VantEdge in Singapore, said that while it was not yet clear what was happening in Iran, any escalation there would likely disrupt the flow of crude.

Hopes of an increase in Chinese demand boosted oil in 2023. The world’s largest importer of crude oil pledged over the weekend to promote a recovery in consumption that would support demand.

(Reporting by Alex Lawler) Additional reporting by Florence Tan and Emily Chow

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