NEW YORK, May 31 (Reuters) - Oil prices fell on Friday and were set for a weekly loss as investors awaited an OPEC+ meeting on Sunday that will determine the fate of the producer group's output cuts.
Brent futures for July delivery were down 26 cents, or 0.3%, to $81.60 a barrel by 1:40 p.m. EDT (1740 GMT), while the more liquid August contract was down 65 cents, or 0.8%, at $81.23. U.S. West Texas Intermediate (WTI) crude futures fell 74 cents, or 1%, at $77.17.
Brent is on track for a weekly decline of 0.6%, with WTI on course for a 0.7% loss.
"It's the trepidation ahead of the OPEC meeting over the weekend," said Matt Smith, lead analyst at Kpler, referencing the potential for the group to do something unexpected. "It's widely expected that they'll roll over the cuts," he added.
Markets are awaiting the OPEC+ meeting on Sunday, with the producer group working on a complex deal that would allow it to extend some of its deep oil production cuts into 2025, three sources familiar with OPEC+ discussions told Reuters.
"OPEC+ is likely to stay in pre-emptive market management mode to keep contango away and prevent oil prices from spiralling to higher levels," said Mukesh Sahdev, an analyst at Rystad Energy.
U.S. crude production rose in March to its highest level this year, data from the U.S. Energy Information Administration (EIA) showed on Friday, while fuel product supplied, a proxy for demand, fell 0.4% to 19.9 million barrels per day.
The oil market has been under pressure in recent weeks over the prospect of borrowing costs staying higher for longer, which ties down funds and can curb oil demand.
Both oil benchmarks were on course for their worst monthly declines since December after dropping in the previous session on a surprise build in U.S. fuel inventories.
"U.S. summer travel season kicked off with Memorial Day weekend, with initial indications showing strong driving and flying activity — but fuel use looks more muted, implying efficiency gains," Citi analysts wrote in a note.
Oil prices rose briefly after U.S. government data on Friday showed U.S. inflation tracked sideways in April, strengthening traders' bets that the Fed would likely deliver a long-awaited rate cut in September.
Euro zone inflation rose more than expected in May, Eurostat data showed. The increase is unlikely to deter the European Central Bank from cutting borrowing costs next week, but it could slow or halt the rate cutting cycle in the coming months.
U.S. energy firms held oil and gas rig count - an early indicator of future output - steady at 600 in the week to May 31, energy services firm Baker Hughes (BKR.O), opens new tab said in its closely followed report on Friday.
Oil rigs fell by one to 496 this week, while gas rigs rose by one to 100.
However, the total rig count fell for the third month in a row in May, dropping by 13, the most in a month since August.
Reporting by Nicole Jao in New York, Robert Harvey in London, Deep Vakil in Bengaluru, Georgina McCartney in Houston and Colleen Howe in Beijing; additional reporting by Natalie Grover; editing by David Goodman, Nick Macfie, Paul Simao and Deepa Babington
