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U.S. Fed, ECB and BoE all expected to raise rates this
week
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OPEC+ panel meeting unlikely to alter policy
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Oil rose initially after drone attack in Iran
(Updates prices)
By Arathy Somasekhar
HOUSTON, Jan 30 (Reuters) - Oil prices extended losses
on Monday as looming increases to interest rates by major
central banks and signs of strong Russian exports offset Middle
East tension over a drone attack in Iran and hopes for higher
Chinese demand.
Investors expect the U.S. Federal Reserve to raise rates by
25 basis points on Wednesday, followed the day after by
half-point increases by the Bank of England and European Central
Bank. Any deviation from that script would be a shock.
"We're seeing a 'risk back off' sentiment from the past two
weeks' rally on ideas that higher interest rates may slow demand
more quickly," said Dennis Kissler, senior vice president of
trading at BOK Financial.
Brent futures for March delivery fell 95 cents to
$85.71 a barrel, a 1.1% loss, by 12:36 p.m. ET (1736 GMT). U.S.
crude fell 70 cents, or 0.9%, to $78.98 per barrel.
The market also came under pressure from indications of
strong Russian supply despite a European Union ban and G7 price
cap imposed over its invasion of Ukraine. Both oil benchmarks
last week registered their first weekly loss in three.
Besides the central bank meetings, a gathering on Wednesday
of key ministers from the OPEC+ group comprising the
Organization of the Petroleum Exporting Countries (OPEC) and
allies led by Russia will also be in focus.
The OPEC+ panel meeting is unlikely to tweak output policy, three OPEC+ delegates told Reuters on Monday. "The boat is not really in stormy seas right now. So why rock something that's not moving about as it is," said Ole Hansen, head of commodity strategy at Saxo Bank. OPEC+ could "surprise markets with a small cut", oil broker PVM said, adding it was unlikely to tweak policy. Earlier on Monday, oil prices rose on tensions in the Middle East after a drone attack in Iran.
While it is not clear yet what's happening in Iran, any escalation there has the potential to disrupt crude flow, said Stefano Grasso, a senior portfolio manager at 8VantEdge in Singapore. Hopes for a rise in Chinese demand have boosted oil in 2023. The world's biggest crude importer pledged over the weekend to promote a consumption recovery that would support demand. "Markets have priced-in rising demand mostly from China so traders are taking a wait and see attitude for clear signs of a demand pull," Kissler added. Traders also remained cautious on a hit to oil production and transportation in Texas after the state oil regulator advised pipeline operators to secure equipment and facilities after forecasts for severe weather over the next several days. (Reporting by Alex Lawler Additional reporting by Swati Verma, Florence Tan and Emily Chow; Editing by Emelia Sithole-Matarise and Bernadette Baum)
Messaging: alex.lawler.reuters.com@reuters.net))