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Oil Prices Slide Over $1 Amid Demand Concerns Despite Middle East Tensions

An aerial view shows Vladimir Arsenyev tanker at the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia August 12, 2022.

Oil prices fell more than $1 on Wednesday due to concerns about higher U.S. commercial inventories and weaker economic data from China, outweighing tensions in the Middle East.

The price of Brent futures for June dropped by $1.21, or 1.3%, to $88.81 a barrel at 1330 GMT, while U.S. crude futures for May were down $1.11, or 1.3%, to $84.25 a barrel. This decline marked their largest fall since March 20 if the losses hold.

This week, economic challenges have dampened the impact of geopolitical tensions on oil prices. Analysts are closely watching Israel’s response to Iran’s weekend attack, but they don’t anticipate significant sanctions from the United States affecting Iran’s oil exports.

John Evans, an oil broker at PVM, noted, “Oil prices are adjusting to reduce some of the premium attributed to the war tensions.” Additionally, hopes for interest rate cuts have taken a hit following statements from top U.S. Federal Reserve officials, including Chair Jerome Powell, who refrained from indicating any potential cuts.

In the UK, the inflation rate slowed less than anticipated in March, suggesting that a rate cut by the Bank of England might not happen as soon as previously thought. However, in the euro zone, inflation decreased last month, reinforcing expectations for a rate cut by the European Central Bank in June.

China, the largest importer of oil globally, saw faster-than-expected economic growth in the first quarter. However, various indicators indicate weak domestic demand.

Concerns about demand were further fueled by a Reuters poll indicating a rise of about 1.4 million barrels in U.S. crude inventories last week. Official data from the Energy Information Administration is expected later on Wednesday.

In other news, Tengizchevroil revealed plans for scheduled maintenance at one of six production trains at the Tengiz oilfield in Kazakhstan in May.

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