“With inflation stubbornly hovering well above the Fed’s 2% target and the U.S. economy showing a resilience few had predicted, the markets moved to price in a scenario where interest rates remain high for longer,” Ricardo Evangelista, senior analyst at ActivTrades, said in emailed comments.

“Against this background, economic activity is expected to be impacted, leading to lower forecasts for future oil demand,” he said.

The Federal Reserve’s favored inflation gauge, the core personal-consumption-expenditures index, is due Thursday.

Investors came into 2024 pricing in six to seven quarter percentage point rate cuts over the course of the year, beginning in March. As the data came in and the Fed pushed back on those expectations, markets now see a somewhat better-than-50% chance cuts will begin in June and that the Fed will deliver only three or four by year-end, according to the CME FedWatch tool.

See: Should stock-market investors care more about Nvidia than the Fed? Inflation data will provide a test.

The U.S. and U.K. conducted more strikes against Houthi targets inside Yemen on Saturday, the Wall Street Journal reported, extending a fight against the Iran-backed group that has targeted shipping in the Red Sea with drone and missile attacks.

While concerns remain over the potential for an escalation of the Israel-Hamas war, so far crude supplies have been largely unaffected.

“This bearish demand outlook, both in China and the West, has more than offset the supply-side pressures arising from ongoing geopolitical turbulence in the Middle East and self-imposed output cuts by OPEC, keeping the price of the barrel well below the levels touched during the fourth quarter of last year,” Evangelista wrote.