Oil prices experienced a notable uptick on Thursday, building upon previous gains, as indicators pointed towards heightened demand in the United States. This surge was fueled by data revealing a slower-than-expected inflation rate in the US, which bolstered speculation of an impending interest rate cut. Such a cut could potentially amplify demand further, propelling oil prices upward.
During early trading hours, Brent futures climbed by 42 cents, marking a 0.5% increase to reach $83.17 per barrel. Similarly, U.S. West Texas Intermediate crude saw a gain of 43 cents, representing a 0.6% rise to $79.06 at 0032 GMT.
The rise in oil prices was attributed to a series of factors, including the subdued inflation figures reported for April in the US. This development has bolstered expectations within financial markets for a Federal Reserve rate cut in September. Such a move could potentially mitigate the strength of the dollar, consequently making oil more accessible for holders of other currencies.
Further supporting the bullish trend were reports indicating declines in U.S. crude oil, gasoline, and distillate inventories. These declines were reflective of increased refining activity and a surge in fuel demand, as highlighted by data from the Energy Information Administration (EIA). Notably, crude inventories saw a substantial decrease of 2.5 million barrels, dropping to 457 million barrels in the week ending May 10, in contrast to the 543,000 barrel consensus forecast among analysts polled by Reuters.
Analysts at ANZ Research emphasized the role of slowing inflation and robust demand in bolstering oil prices, alongside persistent geopolitical tensions. Notably, conflicts in the Middle East, particularly between Israeli troops and Hamas militants in Gaza, have contributed to geopolitical uncertainties.
However, gains were somewhat tempered by a downward revision in the International Energy Agency’s (IEA) forecast for 2024 oil demand growth. The IEA’s revised projection, which now stands at 1.1 million barrels per day, reflects a downward adjustment of 140,000 barrels per day from its previous estimate. Weak demand in developed nations of the Organization for Economic Co-operation and Development (OECD) was cited as a primary contributing factor to this adjustment.
