Oil retreated from nearly two-month highs as traders weighed weakening physical markets and escalating tensions in the Middle East.
Barrels of Brent and West Texas intermediate, WTI, fell and were trading near US$86 and US$81 per barrel, respectively.. Oil remains in a tight range as markets show rising US supplies and the Chinese economy appears sluggish.
However, rising conflicts in the Middle East are holding back prices. Israel is moving closer to all-out war with Hezbollah in Lebanon, while continuing its fight against Hamas in Gaza. Meanwhile, Yemen’s Houthi rebels have stepped up attacks on commercial shipping in the region.
China’s economic outlook is one of the main factors weighing on the market. Slowing demand in the world’s largest crude importer has forced refineries to cut operating rates and extend maintenance.
The U.S. outlook is more optimistic. The Fed’s preferred core inflation index slowed in May, reinforcing the case for lowering interest rates this year. Federal Reserve Bank of Atlanta President Raphael Bostic said he still expects a rate cut this year, in the fourth quarter, as inflation picks up.
Oil price spreads are showing some strength, with Brent rising above $1.50 a barrel in a bullish pullback structure ahead of contract expiry.
