Oil prices were largely flat on Thursday as optimism grew that possible U.S. interest rate cuts would boost economic activity and fuel consumption, but concerns about slowing global demand capped gains.
Brent crude futures rose 22 cents, or 0.3%, to $79.98 a barrel, recovering some of the previous day’s losses. U.S. West Texas Intermediate crude futures rose 23 cents, or 0.3%, to $77.21 a barrel. Both benchmarks fell more than 1% on Wednesday after U.S. crude inventories unexpectedly rose and as concerns about a broader conflict in the Middle East eased..
U.S. consumer prices rose moderately in July and annual inflation growth slowed below 3% for the first time in nearly 31/2 years, boosting expectations that the Federal Reserve will cut interest rates next month..
Vandana Hari, founder of oil market analysis firm Vanda Insights, said: “Concerns about economic growth and oil demand continued to dominate sentiment, which was in a waiting pattern after the U.S. inflation reading in July on Wednesday came in within expectations.”.
Analysts at ING said in a note to clients: “The geopolitical risk still hangs over the oil market. Global oil demand growth slows: International Energy Agency However, analysts at ANZ said in a note to clients that gains in oil inventories raised fears of weakening demand..
U.S. crude oil inventories rose by 1.4 million barrels in the week ended Aug. 9, compared with estimates of a 2.2 million barrel decline, rising for the first time since late June.
China’s factory output growth slowed in July while refinery output fell for the fourth consecutive month, underscoring the country’s erratic economic recovery and also limiting the market’s rally.
Oil Price Forecasts Amid Interest Cuts, China Uncertainty
West Texas Intermediate (WTI), futures on the New York Mercantile Exchange (NYMEX), found support at $75.70 in Thursday’s European session after correcting from a new three-week high of $78.78 in the last two trading sessions. The price of oil is expected to remain sideways as the downside supports uncertainty over conflicts in the Middle East and market participants’ overwhelming expectations that the Fed will start to Rate cuts as of September meeting. Growing uncertainty over global oil demand has settled the upside.
Meanwhile, investors see the Fed’s September rate cut as certain as price pressures remain on track leading to the Fed’s target of 2%. However, traders are divided on how much the Fed will cut key borrowing rates. The Fed’s interest rate cut bodes well for the oil price as a higher liquidity inflow leads to an improvement in economic activity and fuel consumption.
Investors’ confidence that the Fed will cut interest rates from September was boosted by moderate growth in US CPI data for July, released on Wednesday. The CPI report showed that annual core inflation, which excludes volatile food and energy prices, slowed as expected to 3.2%. Headline inflation abruptly slowed to 2.9 percent, its lowest level in more than three years.
In the Asian region, growing concerns about China’s recovery have led to uncertainty about global demand. Data released on Tuesday by the People’s Bank of China showed that new bank loans in July fell to a 15-year low, pointing to weak demand in the domestic market. China is the world’s largest oil importer and poor demand conditions in the economy are weighing on oil prices.
Interest rate cuts and global oil demand concerns
The Oil prices rose on Thursday, partially recovering from Wednesday’s losses as traders bet on a possible U.S. interest rate cut to boost economic activity and fuel demand. However, the market remains under pressure due to ongoing concerns about weak global demand, especially from China. Light crude oil futures are trading at $77.44, up $0.46 or +0.60%.
Recent data has reinforced expectations of a rate cut by the Federal Reserve, which could stimulate the US economy and increase demand for crude oil. the U.S. consumer prices rose modestly in July, with inflation falling below 3% per year for the first time in nearly three-and-a-half years. This moderation in inflation reinforces the case for a September rate cut, a move that traders are already considering.
The CPI rose 0.2% m/m in July and 2.9% year-on-year, slightly below the expected 3% annual increase. The core consumer price index, which excludes volatile food and energy prices, rose 0.2% from June, in line with expectations. are already considering. The rise marks the first increase since late June and suggests that U.S. demand may not be as strong as expected, adding to bearish sentiment in the market.
Uncertain global demand limits gains
the Concerns about global demand, especially from China, continue to limit the potential for higher oil prices. The International Energy Agency recently lowered its the forecast for oil demand growth in 2025, citing China’s sluggish economic performance. Similarly, OPEC cut its forecast for demand growth in 2024 due to weaker-than-expected Chinese consumption.
