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LONDON (Reuters) -Oil prices extended losses on Monday as looming increases to interest rates by major central banks and signs of strong Russian exports offset rising Middle East tension over a drone attack in Iran and hopes of 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.
“The risk-off cautious mood in the market ahead of the central bank meetings is hurting risk assets, including oil,” said City Index analyst Fiona Cincotta.
Brent crude fell 94 cents, or 1.1%, to $85.72 a barrel by 1436 GMT while U.S. West Texas Intermediate crude dropped $1.40, or 1.8%, to $78.28.
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 of 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.
Reporting by Alex LawlerAdditional reporting by Swati Verma, Florence Tan and Emily Chow;Editing by Louise Heavens, David Goodman and Emelia Sithole-Matarise