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Oil prices edge lower as debt limit deal optimism tempered by Fed rate concerns -- Oil prices dropped on Monday, paring back earlier gains, as optimism over the debt ceiling agreement was tempered by renewed expectations that the Federal Reserve will carry on with its long-running campaign of interest rate hikes.

By 07:00 ET (11:00 GMT), U.S. crude futures traded 0.15% lower at $72.56 a barrel, while the Brent 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 preferred inflation gauge. 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 nonfarm payrolls 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 probability of rate changes, 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.

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