Oil prices drop as the European Central Bank signals that interest rates will continue to rise

Oil prices dropped more than 1% on Tuesday as investors expected information on American gasoline use during the busiest summer driving season as well as signs that the European Central Bank would continue raising interest rates.

By 12:46 p.m. EDT (1646 GMT), Brent oil futures were down $1.22, or 1.6%, at $72.96 per barrel. West Texas Intermediate (WTI) futures for the United States decreased by $1.10, or 1.6%, to $68.27.

The price range for both contracts has been tracked back to $10 since early May. Prices, according to Oanda analyst Craig Erlam, are mostly dependent on “the ever-changing expectations for interest rates”.

President of the European Central Bank Christine Lagarde said on Tuesday that the bank must refrain from announcing an end to rate increases due to persistently rising inflation. Economic activity and oil consumption may suffer from higher interest rates.

Despite worries about the European economy’s slowing down, interest rates will be raised, which will put downward pressure on prices, according to Price Futures Group analyst Phil Flynn.

European stocks also declined. [MKTS/GLOB]

At 4:30 p.m. EDT, American Petroleum Institute industry group data on U.S. inventories is anticipated, with government data coming on Wednesday.[API/S] According to a Reuters survey, U.S. inventories likely decreased in the week leading up to June 23. [EIA/S]

Brent’s six-month backwardation, a pricing structure in which futures that load sooner trade above those that load later, hit its lowest level since December and was only marginally positive, signaling waning worry over supply shortages.

The market is in shallow contango, the opposite price structure, for the two-month spread, suggesting that traders are taking into account a little oversupplied market.

The failed revolt by the mercenary organization Wagner in Russia over the weekend was ignored by the market, and Russian oil loadings continued as planned.

Tamas Varga of PVM remarked, “The latest geopolitical flare-up quickly fades into insignificance compared to persistent macroeconomic considerations.”

This is true despite Saudi Arabia’s promise to cut down on production starting in July.

Premier Li Qiang said that China would take measures to enliven markets but did not provide specifics. Much will rely on whether Chinese oil demand comes up in the second half.