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Brent futures for August settlement were down 43 cents at $85.58
a barrel by 1100 GMT. U.S. crude futures also dipped by 43 cents
to $81.20.
Both benchmarks gained about 3% last week, marking two straight
weeks of gains.
"Front-month Brent prices could push into the upper $80s in the
short term, driven by the confluence of increasing geopolitical
risk and bullish fundamentals, steepening the market's
backwardation," said Rystad Energy analyst Claudio Galimberti.
Backwardation is when front-month prices are higher than the
second month, making oil likelier to be used now rather than be
left in storage for the future.
Oil and fuel stockpiles have declined and gasoline demand is
rising as the United States, the world's biggest oil consumer,
enters its peak summer consumption period.
U.S. crude oil stockpiles are expected to have fallen by 3
million barrels in the week to June 21, a preliminary Reuters
poll showed on Monday. Gasoline stocks were also expected to
have declined while distillate inventories are likely to have
risen. [EIA/S]
"The surge in oil prices was triggered by an optimistic demand
outlook and reduced U.S. inventories. With the Northern
Hemisphere entering a hot summer and the upcoming hurricane
season, demand is expected to continue increasing in the coming
months," said independent market analyst Tina Teng.
Also on the radar is Friday's release of the personal
consumption expenditures index, the U.S. Federal Reserve's
preferred inflation measure, which will give investors a steer
on how long the central bank might wait before reducing interest
rates.
Fed Governor Michelle Bowman reiterated that holding the policy
rate steady "for some time" is likely to be enough to bring
inflation under control.
Delays to a U.S. rate cut could hold back the economy and limit
growth in fuel consumption.
Oil was also supported by continued Ukrainian attacks on Russian
oil infrastructure. On June 21, Ukrainian drones hit four
refineries, including the Ilsky refinery, one of the main fuel
producers in southern Russia.
(Reporting by Deep Vakil in BengaluruAdditional reporting by
Emily Chow in SingaporeEditing by David Goodman)
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