Emily Chow

BEIJING, (Reuters) – Oil prices fell early Friday due to rising U.S. inflation and investors awaiting the results of U.S.-Iran negotiations that may lead to an increase global crude supply.

Futures declined 40 cents (or 0.4%) to $91.01/barrel at 0140 GMT. U.S. West Texas Intermediate crude fell 25 cents (0.3%) to $89.63/barrel.

Although benchmark oil prices will see their first weekly drop after seven weeks of gains consecutively, both contracts were previously at a seven year high.

“The crude price rally has finally run out of steam as optimism grows that Iran nuclear deal talks are headed in the right direction and as the dollar rallies as money markets start to price in a supersized Fed hike,” said Edward Moya, senior market analyst at brokerage OANDA.

Although the oil market remains tight, exhaustion has set in in with crude prices. The dollar will continue its rally and oil prices could fall further if it does. 

James Bullard, President of the St. Louis Federal Reserve Bank had stated that he would like to see a full percentage point increase in interest rates by July 1. This was after U.S. inflation data showed its largest annual rise in over 40 years.

Investors are also watching the U.S.-Iran indirect talks to revive a nuke deal. These talks resumed on Monday after a break of 10 days. The possibility of a deal would allow for the lifting sanctions on Iran and reduce global supply chain tightness.

Jen Psaki, White House spokesperson said that talks had “reached an urgent stage” and that “a deal that addresses all the core concerns is within sight.”

The Organization of the Petroleum Exporting Countries, (OPEC), said the demand for oil in the world might increase even further this year. As the world economy recovers from the pandemic, the group predicts a 4.15 million barrels of oil per day (bpd).