Investing.com — Oil prices dropped on Monday, paring back earlier gains, as optimism over the debt ceiling agreement was tempered by renewed expectations that the will carry on with its long-running campaign of interest rate hikes.
By 07:00 ET (11:00 GMT), futures traded 0.15% lower at $72.56 a barrel, while the contract slipped 0.30% to $76.75 per barrel. Volumes are expected to remain muted with U.S. and U.K. markets closed for a holiday.
Both of the benchmarks, which are coming off of two consecutive weeks of gains, were initially boosted by hopes that the deal to lift the $31.4 trillion U.S. debt limit would help the world’s largest economy – and biggest oil consumer – avoid a potentially catastrophic default.
However, traders remained concerned over the possibility that the Fed will decide to increase borrowing costs following a hotter-than-anticipated April reading of the U.S. central bank’s . The uptick could weigh on oil demand, analysts cited by Reuters flagged.
Fed officials still have more data to sift through before their June meeting, including the report for May. Economists predict that the closely-watched jobs report, due out on Friday, will show that the U.S. economy added 180,000 jobs in May, down from 253,000 last month.
The CME FedWatch Tool, which aims to track the , now shows that there is a 66.42% chance the Fed will lift rates by a quarter-point at its June meeting, up from 25.66% a week ago. Conversely, there is a 33.58% probability that the bank will keep rates unchanged, down from 74.34% last Monday.
Elsewhere, the Organization of Petroleum Exporting Countries and its allies including Russia are set to meet on Sunday, with some uncertainty surrounding whether the group will slash production levels.