Oil prices extended their gains from the previous session on Thursday, bolstered by a larger-than-expected drop last week in U.S. crude inventories. The United States is the world’s largest oil consumer.
Brent futures, the global oil benchmark, rose 32 cents, or 0.4 percent, to $85.40 per barrel as of 3:40 GMT. Meanwhile, U.S. West Texas Intermediate (WTI) crude gained 48 cents, or 0.6 percent, to $83.33 per barrel. Both contract prices had settled higher on Wednesday.
Unexpected decline in U.S. crude stocks
The latest data from the U.S. Energy Information Administration showed that U.S. crude inventories fell by 4.9 million barrels last week. This exceeded the 30,000-barrel decline forecast by analysts in a Reuters poll and the 4.4 million-barrel drop reported by the American Petroleum Institute trade group.
Robust U.S. demand offsets Chinese growth concerns
“Healthy demand signals from the U.S. outweigh concerns from modest Chinese growth last week,” said Priyanka Sachdeva, senior market analyst at Phillip Nova. Sachdeva noted that “hopes of a Fed easing, which can boost economic growth, and current summer travel in the U.S. are ensuring enough traction in oil demand from the world’s largest economy.”
Prospects of interest rate cuts support oil prices
The prospects of interest rate cuts in the coming months in both the U.S. and Europe also helped support the oil market. Federal Reserve officials said on Wednesday that the central bank is “closer” to cutting interest rates given the improved trajectory of inflation and a better-balanced labor market, potentially setting the stage for a rate reduction in September.
Similarly, the European Central Bank is widely expected to keep interest rates unchanged on Thursday, but has signaled that its next move is likely to be a rate cut.
Awaiting policy updates from China
Investors are also awaiting policy updates from a key leadership meeting in China that is set to conclude on Thursday.
Read more: Oil prices stabilize amid declining U.S. reserves, slower China demand
Weaker dollar boosts oil demand
Additionally, the U.S. dollar eased for a third consecutive session on Thursday. A weaker dollar can boost demand for oil by making dollar-denominated commodities like oil less expensive for holders of other currencies.
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