Oil prices increase amid expectations of Fed rate cut
In a twist of events, oil prices saw a second consecutive rise on Thursday, fueled by the anticipation of a Federal Reserve interest rate cut in September. Despite this positive trend, the surge was held back by higher US inventories and a plan by OPEC+ to ramp up supply, as reported by Reuters.
By 9:45 a.m. Saudi time, Brent crude futures were trading at $78.74 per barrel, marking a 0.42 percent increase. US West Texas Intermediate crude futures also saw a boost, reaching $74.46, up by 0.53 percent.
The likelihood of a rate cut by the Fed in September seems to be gaining momentum, with nearly two-thirds of economists foreseeing this move. This projection, based on a May 31-June 5 poll by Reuters, is seen as a counterbalance to recent bearish supply news.
Lower interest rates are expected to spur economic activity by reducing borrowing costs, thereby potentially increasing oil demand. However, the strength of the case for rate cuts may be called into question by the rebound in the US services sector activity, which rebounded in May after a contraction in April.
Despite Thursday’s gains, oil benchmarks were still on track for weekly declines of around 4 percent, influenced by the recent decision by OPEC and its allies regarding oil output cuts.
OPEC+ agreed to extend most of their oil output cuts into 2025 but allowed for gradual unwinding of voluntary cuts from eight members starting in October. Emril Jamil, senior analyst for crude at LSEG Oil Research, commented, “We believe the OPEC+ move to unwind the 2.2 million barrels per day in the final quarter of 2024 will add further pressure to benchmark prices.”
Bearish sentiment is expected to persist due to forecasts of weaker demand as inventories build up, according to Jamil. Additionally, Saudi Arabia reduced its official selling prices for July crude, as revealed in a document seen by Reuters on Wednesday, in response to declining Middle East crude benchmarks and shrinking profit margins for Asian refiners.
Moreover, US crude stocks unexpectedly surged by 1.2 million barrels in the week ending May 31, contrary to analysts’ expectations of a draw of 2.3 million barrels, as per data from the US Energy Information Administration.