Oil Prices Decline Amid Weak U.S. Fuel Demand and Profit-Taking

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NEW YORK, June 28 (Reuters) – Oil prices declined on Friday as weak U.S. fuel demand and profit-taking at quarter-end influenced investor decisions. Key inflation data for May also increased the likelihood that the Federal Reserve may cut interest rates this year.

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Brent crude futures for August, which expired on Friday, settled up 2 cents at $86.41 a barrel. The more actively traded September contract fell 0.3% to $85 a barrel. U.S. West Texas Intermediate (WTI) crude futures closed 20 cents lower, or 0.24%, at $81.54 a barrel.

For the week, Brent saw a slight increase of 0.02%, while WTI futures experienced a 0.2% loss. Both benchmarks posted gains of around 6% for the month.

In April, U.S. oil production and demand reached a four-month high, but gasoline demand fell to 8.83 million barrels per day, its lowest since February, according to the Energy Information Administration’s Petroleum Supply Monthly report released on Friday.

“The EIA’s monthly report indicated poor gasoline demand,” said Phil Flynn, analyst at Price Futures Group. “Those numbers didn’t inspire more buying.”

Analysts noted that some traders took profits at the end of the second quarter following a rally earlier in the month.

The U.S. personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, was flat in May, raising hopes for rate cuts in September. However, the financial market reaction was minimal, and oil traders largely ignored the release, according to Charalampos Pissouros, senior investment analyst at brokerage XM.

Expectations of a Fed easing cycle have fueled a risk rally in stock markets. Traders are now pricing in a 64% chance of a rate cut in September, up from 50% a month ago, based on the CME FedWatch tool. Lower interest rates could boost oil demand by increasing consumer spending.

“Oil prices have been aligning with our fair value estimates, reflecting underlying strength in fundamentals,” Barclays analyst Amarpreet Singh noted in a client message. Barclays expects Brent crude to hover around $90 a barrel in the coming months.

A Reuters poll indicated that oil prices might remain stable in the second half of 2024, with concerns over Chinese demand and potential higher supply from key producers balancing geopolitical risks. The poll expects Brent crude to average $83.93 a barrel in 2024, with U.S. crude averaging $79.72.

The U.S. active oil rig count, an early indicator of future output, dropped by six to 479 this week, marking the lowest level since December 2021, according to energy services firm Baker Hughes.

Money managers increased their net long U.S. crude futures and options positions in the week ending June 25, reported the U.S. Commodity Futures Trading Commission (CFTC).

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