Oil prices continued to rise on Thursday, bolstered by growing expectations of an interest rate cut from the U.S. Federal Reserve in September. This potential rate cut provided support despite being tempered by an OPEC+ plan to increase supply and higher U.S. inventories. By 0815 GMT, Brent crude futures had increased by 57 cents (0.7%) to $78.98 a barrel, while U.S. West Texas Intermediate crude futures were up 62 cents (0.8%) to $74.69.
On Wednesday, oil benchmarks saw a rise of more than 1%, rebounding after a near $8 per barrel drop over the five sessions through Tuesday. According to a Reuters poll conducted from May 31 to June 5, nearly two-thirds of economists now expect the Fed to cut interest rates in September. Lower interest rates reduce borrowing costs, potentially stimulating economic activity and increasing oil demand.
However, the argument for rate cuts might be undermined by the U.S. services sector, which accounts for most of the country’s economic output, returning to growth in May after a contraction in April. Despite the recent price increases, oil prices were still on track for a weekly decline of about 3%, influenced by the latest supply decision from OPEC+, which includes members of the Organization of the Petroleum Exporting Countries (OPEC) and allies. The group agreed on Sunday to extend most of their oil output cuts into 2025 but allowed for voluntary cuts from eight members to be gradually unwound starting in October.
Barclays analyst Amarpreet Singh noted that the oil markets had overreacted to the mildly negative outcome of the OPEC+ meeting, stating that while demand indicators had softened somewhat recently, they were not in a severe decline. OPEC Secretary General Haitham Al Ghais defended the recent adjustments to the OPEC+ output deal, expressing optimism about sustained strong demand. Russia’s Deputy Prime Minister Alexander Novak also predicted a gradual increase in global oil demand without an imminent peak.
Despite this, bearish sentiment is expected to persist due to anticipated weaker demand as inventories build, according to Emril Jamil, a senior analyst for crude at LSEG Oil Research.
Union Jack Oil plc (LON:UJO) is an onshore oil and gas exploration company with a focus on drilling, development and investment opportunities in the United Kingdom hydrocarbon sector.
