Oil Rallies as US Fed Rate Cut Expectations Rise
Oil prices increased on Tuesday following growing rate cut signals from the US Federal Reserve. After weakness across the complex last week, oil prices traded stronger with rising tension in the Middle East, while a weaker US dollar provides some support.
International benchmark Brent crude traded at $82.48 per barrel, representing an increase of 0.10% from the closing price of $82.40 per barrel in the previous trading session.
The American benchmark West Texas Intermediate (WTI) traded at $78.52 per barrel at the same time, a 0.15% rise from the previous session that closed at $78.40 per barrel.
Analysts expect the US Federal Reserve (Fed) to cut interest rates 3 times by the end of the year, according to the pricing for the future policies of the bank.
Meanwhile, the signals received from the latest data point to a cooling in the labor market as one of the factors that reduce the risk perception on the grounds that it opens up space for the Fed’s expansionary policy steps.
Low interest rates decrease the value of the US dollar against other currencies and supports upward price movements by influencing demand positively.
On Monday, the US dollar index reached its highest level by increasing 0.2% to 104.42 deterring more expensive oil trade and curtailing price rises on the back of profit-taking from higher prices on Tuesday.
While, the American Petroleum Institute (API) will release its US crude oil inventory estimates today. The market expectation is that stocks will increase by 700,000 barrels.
The increase in stocks could put downward pressure on prices by pointing to a decrease in oil demand in the US, the world’s most oil-consuming country. The Energy Information Administration (EIA) will disclose official figures on Wednesday.
Oil prices fell for a second consecutive week last week. ICE Brent settled about 2.8% lower last week, the biggest weekly decline since early May, according to ING commodity strategists.
Analysts said concern over weaker Chinese demand has weighed on the market. However, the market is trading higher in the Asian early morning with rising tension in the Middle East likely providing some support.
Following a Houthi drone strike on Tel Aviv, Israel responded over the weekend with an airstrike against the Houthis in Yemen. In addition, out-of-control wildfires in Alberta, Canada, continue to pose a risk to a large amount of oil supply.
Dangote oil refinery in Nigeria plans to hit 60% of capacity by September and 550k b/d of output by the end of the year. The ramping up of this large refinery is likely to keep pressure on refinery margins, reducing the West Africa gasoline deficit and increasing middle distillates supply.
The refinery is also reportedly asking the government to ban imports of diesel and jet fuel, something the Nigerian Midstream and Downstream Regulatory Agency opposes.
Elsewhere, cease-fire efforts in the Middle East, home to a vast majority of global oil reserves, put downward pressure on oil prices by relieving market players’ supply concerns.
UK Prime Minister Keir Starmer called for an immediate cease-fire in Gaza during a speech in Parliament on Monday, emphasizing the urgent need for humanitarian aid and the return of hostages.
Starmer said he spoke with the leaders of Israel and the Palestinian Authority where he expressed that he fully supports ‘Israel’s right to security and the desperate need to see the hostages returned.
“And I’ve also been clear that the situation in Gaza is intolerable and that the world will not look away as innocent civilians, including women and children, continue to face death, disease, and displacement.’ Effective Govt. Institutions Drive Socio-Economic Dev – BPSR
