Oil Prices Dip Amid Concerns Over Demand Outlook

Crude oil prices dropped by 1% on Tuesday due to weak U.S. consumer confidence data, which raised concerns about the economic outlook and fuel demand following a sluggish start to the U.S. summer driving season. Brent futures for August fell by $1, or 1.2%, settling at $85.01 a barrel. U.S. crude futures settled at $80.83, down 80 cents or 1%. 

Last week, both benchmarks gained approximately 3%, marking two consecutive weeks of gains and reaching their highest levels since April. 

U.S. consumer confidence declined in June. Although households remained optimistic about the labor market and anticipated that inflation would moderate, concerns about the economy could negatively impact gasoline demand. High inventory levels have made oil traders apprehensive about summer driving demand.

U.S. crude stocks increased by 914,000 barrels in the week ending June 21, according to market sources citing figures from the American Petroleum Institute. The data also showed that gasoline inventories rose by 3.843 million barrels, while distillate stocks fell by 1.178 million barrels. Official government data is expected to be released on Wednesday. 

A preliminary Reuters poll on Monday indicated that U.S. crude and gasoline stockpiles were expected to have decreased, while distillate inventories likely increased last week.

Investors are also trying to determine the timing of potential Federal Reserve interest rate cuts. On Tuesday, Fed Governor Lisa Cook indicated that a rate cut is likely if the economy performs as expected, but she did not specify when the U.S. central bank might take action. 

A Fed "decision on interest rates is still mixed, and most of the crude market has priced in a quarter percent cut by September," said Dennis Kissler, senior vice president of trading at BOK Financial. 

Oil prices received support due to supply disruptions caused by Ukrainian attacks on Russian oil infrastructure. On June 21, Ukrainian drones targeted four refineries, including the Ilsky refinery, a major fuel producer in southern Russia.

Analysts have noted that concerns over escalating tensions between Israel and the Iran-backed group Hezbollah have also supported oil prices. "Geopolitical pressures continue to roil the oil market from multiple fronts. ... (The) tensions are expected to persist amid failed efforts to broker ceasefires," said Claudio Galimberti, a director at consultancy Rystad Energy.