By Robert Harvey and Deep Kaushik Vakil
LONDON (Reuters) -Oil prices edged higher on Friday as U.S. inflation data lifted expectations of a September rate cut, with the market focused on Sunday’s OPEC+ meeting that will determine the fate of the producer group’s output cuts.
Brent futures for July delivery rose 12 cents, or 0.2%, at $81.98 a barrel by 1320 GMT, while the more liquid August contract was up 37 cents, or 0.5%, at $82.25.
The spread between the two contracts hit an 11-month low after closing in contango for the first time this year on Thursday.
U.S. West Texas Intermediate (WTI) crude futures were up 26 cents, or 0.3%, at $78.17.
After data on Friday showed U.S. inflation tracked sideways in April, traders expect that the Fed is more likely to 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.
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.
Gasoline inventories rose by 2 million barrels, against expectations of a 400,000 barrel draw and higher demand ahead of the Memorial Day weekend.
“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.
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 Rystad Energy analyst Mukesh Sahdev.
(Reporting by Robert Harvey in London, Deep Vakil in Bengaluru, Georgina McCartney in Houston and Colleen Howe in Beijing; additional reporting by Natalie GroverEditing by David Goodman and Nick Macfie)
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