Oil prices rose by 1% on Wednesday, bouncing back from four-month lows. This increase was driven by optimism that the U.S. Federal Reserve might cut interest rates in September, despite concerns over demand following reports of rising U.S. crude and fuel inventories.
Brent crude futures ended the day 89 cents higher, or 1.2%, at $78.41 per barrel, while U.S. West Texas Intermediate crude futures went up by 82 cents, or 1.1%, reaching $74.07 per barrel. Data from the U.S. Energy Information Administration showed that U.S. crude stocks increased by 1.2 million barrels in the week ending May 31. This rise was contrary to analysts’ expectations of a 2.3 million-barrel draw, though it was less than the American Petroleum Institute’s report of a 4 million-barrel increase.
Gasoline inventories also rose, adding 2.1 million barrels against the anticipated 2 million-barrel increase. This heightened demand concerns, particularly as the data covered the Memorial Day holiday period, which traditionally marks the start of the U.S. summer driving season. Additionally, distillate stocks increased by 3.2 million barrels, exceeding the expected 2.5 million-barrel rise.
Meanwhile, a Reuters poll indicated that the U.S. Federal Reserve is expected to cut its key interest rate in September and once more within the year. The CME’s FedWatch tool revealed that traders now see a nearly 69% likelihood of a September rate reduction, up from about 50% the previous week. John Kilduff, partner at Again Capital, noted that weak economic data outside the oil sector could prompt the Fed to cut rates, potentially spurring economic growth and boosting oil demand.
U.S. stock indexes also rose on Wednesday, as investors anticipated an earlier start to the Federal Reserve’s policy easing cycle. Despite these gains, both oil contracts had fallen for five consecutive sessions and dropped more than 1% on Tuesday, hitting their lowest settlement levels since early February. This decline followed announcements from the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, regarding plans to increase supply in the fourth quarter despite signs of slowing demand growth.
Dennis Kissler, senior vice president of trading at BOK Financial, suggested that OPEC+ might not proceed with increasing production if prices remain in the low $70s. Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, indicated that OPEC+ could pause or reverse the cuts if demand is insufficient to absorb the additional barrels.
In related news, U.S. Energy Secretary Jennifer Granholm mentioned that the country could accelerate the replenishment of its Strategic Petroleum Reserve, asserting that the global oil market is well-supplied. However, Saudi Arabia’s decision to cut the official selling price for its flagship Arab Light crude oil to Asia, the first reduction in five months, highlighted the pressures OPEC producers face due to growing non-OPEC supply and ongoing demand concerns.
Challenger Energy Group plc (LON:CEG) is a Caribbean and Atlantic margin focused oil and gas company, with a range of petroleum assets located onshore in Trinidad and Tobago, and Suriname, and offshore in the waters of The Bahamas and Uruguay.
