Oil prices slip as investors await key economic data, Fed meeting outcome

Oil prices fell on Tuesday as investors anticipated critical U.S. and Chinese CPI data, as well as the outcome of the Federal Reserve’s policy meeting, to gain a better understanding of where inflation is headed and how it would affect fuel demand.

Brent crude prices dropped 13 cents, or 0.16%, to $81.50 a barrel by 0613 GMT, while U.S. West Texas Intermediate crude futures were down 7 cents, or 0.04%, to $77.67.

Prices had risen by roughly 3% to a one-week high on Monday, boosted by anticipation that the Northern Hemisphere summer vacation season would increase fuel use. However, economists predicted that this increase would be short-lived due to the potential of higher interest rates.

On Wednesday, the Federal Reserve will disclose May consumer price index data and conclude its two-day policy meeting.

“More conviction may be needed in oil prices for a more sustained recovery with a move above the US$83.00 level, given that the broader trend for oil prices still leans on the downside with a series of higher highs since April,” commented IG market strategist Yeap Jun Rong.

Traders were also wary ahead of China’s macroeconomic data release on Wednesday, particularly the possible influence of Chinese inflation data on oil prices.

“The potential adverse macro driver for oil prices will be China’s inflation data that will be out tomorrow,” said OANDA senior market analyst Kelvin Wong. “The expected consensus estimates are looking for a further slowdown in the deflationary trend of China’s factory gate prices… but if the PPI numbers disappoint, it suggests that the deflationary risk spiral remains entrenched in China which in turn may likely see less demand of oil.”

Saudi crude exports to China increased for the third consecutive month, putting additional pressure on prices.

Despite these considerations, greater refinery margins and the possibility of the United States increasing crude purchases to replenish its petroleum reserves boosted oil prices.

Profit margins for a typical Singapore refinery that processes Dubai crude have averaged over $4 per barrel over the last three trading sessions, up from $2.56 per barrel in May, according to LSEG pricing data.