Oil prices gave back gains on Friday on hopes that the U.S. Federal Reserve will soon begin a long-awaited interest rate cut, stimulating the world's largest economy and boosting demand for crude.
Brent crude, the benchmark for two-thirds of global crude, was little changed, closing up $0.02 at $86.41 a barrel. West Texas Intermediate crude, a benchmark that tracks U.S. crude, fell 0.24% to close at $81.54.
Both benchmark oil prices are on track to post monthly gains of more than 6%, recovering from May's declines. Year-to-date, Brent crude is up 12.8%, while WTI crude has surged nearly 15%.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said that from a technical perspective, the outlook for the oil market was improving.
“US crude finally broke the crucial $82 mark. [per barrel] “It has overcome resistance and is back on the positive trend that had formed at the start of the year,” she said in a note on Friday.
“The April-June sell-off is well behind us and trend and momentum indicators remain positive, but the market has not yet entered overbought territory, meaning there is room for further upside in the near term.”
Samer Hassun, market analyst at XS.com, said the rise in oil prices was also supported by “growing concerns among U.S. government officials that a Middle East conflict could erupt on multiple fronts and get out of control, coupled with a lack of encouraging data from the U.S. economy and China this week.”
The prospects for a significant increase in oil prices are compounded by a prolonged period of high interest rates, which dampen economic growth and reduce demand for oil.
On June 12, the Federal Reserve Board (FRB) lowered its outlook for interest rate cuts in 2024 and now expects to cut US interest rates once this year, a clear sign that its plans to ease monetary policy are slowing.
Previous market expectations had predicted three rate cuts in 2024.
The Fed left its target rate unchanged at 5.25% to 5.50%. In its latest projections released at its June 11-12 meeting, policymakers now expect U.S. interest rates to be cut to 5.1% this year.
Still, markets are rallying on hopes that the U.S. central bank will finally back down from its historic string of interest rate hikes.
Oil prices traded in a narrow range ahead of the release of key U.S. economic data this week. The U.S. Personal Consumption Expenditures Price Index, which the Fed sees as a key indicator of inflation, is due to be released later on Friday and could influence the Fed's decision on when to cut interest rates.
“Sentiment across financial markets is subdued ahead of a key U.S. inflation report,” energy markets consultancy Vanda Insights said.
The U.S. economy performed generally well in the first quarter of this year, with gross domestic product (GDP) growth revised slightly upward to an annualized 1.4%, the Commerce Department said Thursday, but that's still significantly down from the 3.4% forecast for the same period in 2023.
Consumer spending was also weak, with U.S. consumption growth rate revised down to 1.5 percent from 2 percent previously, the department said.
Meanwhile, the Labor Department said Thursday that jobless claims for the week ending June 22 fell to 233,000.
“From a fundamental standpoint, [economic] The news is supportive,” Ozkardeskaya said.
Brent crude prices have risen nearly 11% since the OPEC+ meeting on June 3 when the group decided to extend production cuts of 3.66 million barrels per day until the end of 2025.
The country also announced plans to gradually lift voluntary production curbs of 2.2 million barrels per day between October 2024 and September 2025, which is expected to initially lead to a decline in crude oil prices.
Days after the announcement, Saudi Arabia's Energy Minister Prince Abdul Aziz bin Salman criticized media speculation and market analysis surrounding the OPEC+ meeting, calling such actions “games the markets.”
Meanwhile, the U.S. Energy Information Administration said Wednesday that crude oil inventories unexpectedly rose last week.
Commercial crude oil inventories rose by 3.6 million barrels in the week ended June 21, reversing expectations of a decline of 2.8 million barrels.
The International Energy Agency (IEA) said on June 12 that it expects spare capacity in the oil market to reach levels in a decade's time that were only recorded during the peak of the 2020 coronavirus lockdowns.
The Paris-based agency said in a report that it expects total supply capacity to rise to nearly 114 million barrels per day by 2030, 8 million barrels per day above projected global demand.
Updated: June 29, 2024 4:42 AM