Oil Prices Stabilize Amid Fed Rate Cut Expectations and Higher U.S. Inventories
Oil prices remained stable on Thursday, buoyed by growing expectations of a U.S. Federal Reserve interest rate cut in September, which offset concerns over higher U.S. inventories and plans by OPEC+ to gradually increase supply.
By 1005 GMT, Brent crude futures had risen 25 cents, or 0.3%, to $78.66 a barrel, while U.S. West Texas Intermediate crude futures were up 31 cents, or 0.4%, at $74.38.
The oil benchmarks had recovered more than 1% on Wednesday, rebounding from a near $8 per barrel decline over the previous five sessions through Tuesday.
A Reuters poll conducted from May 31 to June 5 indicated that nearly two-thirds of economists now predict the Federal Reserve will cut interest rates in September. This expectation has helped counterbalance recent bearish supply news.
Lower interest rates reduce borrowing costs, potentially stimulating economic activity and increasing oil demand.
Despite the recent uptick, oil prices were still set for weekly declines exceeding 3%.
Trafigura’s chief economist, Saad Rahim, noted that OPEC+’s decision to phase out some output cuts from October, along with robust supply in the products market, has contributed to the downward pressure on oil prices.
OPEC+, which includes members of the Organization of the Petroleum Exporting Countries (OPEC) and their allies, agreed on Sunday to extend most of their production cuts into 2025, while allowing for the gradual unwinding of voluntary cuts by eight members.
OPEC Secretary General Haitham Al Ghais and Russian Deputy Prime Minister Alexander Novak defended the OPEC+ deal, expressing optimism about continued strong demand for oil.
“Oil markets have overreacted to the mildly negative OPEC+ meeting outcome. Demand indicators have certainly softened somewhat recently, but are not falling off a cliff,” Barclays analyst Amarpreet Singh wrote in a note.
In the U.S., crude stocks increased by 1.2 million barrels in the week ending May 31, contrary to analysts’ expectations of a 2.3 million barrel drawdown, according to data from the U.S. Energy Information Administration.
“Summer inventory draws should be enough to get Brent oil back into the high $80s-$90 range by September,” J.P. Morgan analysts wrote in a note, but they cautioned that prices could face pressure in 2025 due to slower demand and non-OPEC supply growth. They forecast Brent to average $83 this year and $75 next year.
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