Oil prices rebounded on Thursday, continuing a recovery from four-month lows. The uptick was driven by optimism over the prospect of lower interest rates in the coming months, which offset negative signals from an unexpected rise in U.S. crude inventories.
Traders also expressed skepticism about the Organization of Petroleum Exporting Countries and its allies (OPEC+) plans to start scaling back production cuts later this year, especially given the recent weakness in oil prices.
Benchmarks rise amid broader market gains
Brent crude futures for August delivery rose 0.5 percent to $78.80 per barrel, while West Texas Intermediate (WTI) crude futures increased 0.6 percent to $74.26 per barrel as of 00:57 GMT. Both benchmarks had surged nearly 2 percent on Wednesday after dropping to four-month lows earlier in the week.
Lower interest rates boost oil market optimism
The oil price gains tracked a broader uptick in risk-driven markets, as weak U.S. employment data fueled expectations that the Federal Reserve will begin cutting interest rates as soon as September. Additionally, the Bank of Canada’s rate cut on Wednesday and the anticipated rate reduction by the European Central Bank on Thursday bolstered hopes for looser monetary policy, which traders believe could help support oil demand later this year.
Commenting on this, Nick Spencer-Skeen, SEO, APM Capital, said, “Asian stock markets traded mostly higher on Wednesday, following the broadly positive cues from Wall Street overnight, amid easing of global yields and on optimism that data showing weakness in the U.S. labor market will encourage the U.S. Fed to lower interest rates in the coming months.”
He added, “A series of weak labor market readings drummed up hopes that the Federal Reserve will begin cutting rates by September. But gains in futures were held back by anticipation of more upcoming economic data in the coming days.”
Read more: Oil prices drop to 4-month low amid outsized increase in U.S. inventories
Economic concerns linger
However, the prospect of rate cuts comes amid gloomy global economic conditions, which could still limit oil demand growth.
Still, crude prices benefited from some bargain-hunting on Thursday, after concerns over sluggish demand and higher supplies had weighed on the market earlier this week.
U.S. inventory builds raise demand worries
Government data released on Wednesday showed that U.S. crude inventories grew by 1.2 million barrels in the week to May 31, contrary to expectations for a drawdown. Distillate and gasoline stocks also grew more than anticipated, raising worries about cooling demand in the world’s largest fuel consumer, even as the peak summer driving season began.
OPEC+ may rethink production cut phaseout
Looking ahead, analysts at Roth MKM suggest that sustained weakness in oil prices could prompt OPEC+ to walk back its plans to start phasing out production cuts this year. The group had previously announced its intention to begin scaling back 2.2 million barrels per day of output reductions from October 2024 to September 2025, but this move may be postponed or even canceled if prices remain depressed.
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