Oil prices saw a slight increase on Thursday as optimism grew around potential US interest rate cuts that could boost economic activity and fuel consumption. However, concerns about slower global demand tempered the gains. Brent crude futures rose by 51 cents, or 0.6 per cent, reaching $80.27 a barrel. Meanwhile, US West Texas Intermediate crude futures were up by 47 cents, or 0.6 per cent, at $77.45 per barrel, recovering some of the losses from the previous day.
Both benchmark crude prices had fallen over 1 per cent on Wednesday due to an unexpected rise in US crude inventories. In a positive economic development, US consumer prices moderately rose in July, with the annual inflation increase dropping below 3 per cent for the first time in nearly 3-1/2 years. This has reinforced the expectation that the Federal Reserve will cut interest rates next month.
Market analyst Milad Azar noted that crude oil prices inched higher during the early European session due to increased risks of confrontations in the Middle East. The optimism surrounding potential US interest rate cuts driving economic growth and increasing fuel consumption has also had a supportive effect on oil prices. Investor concerns over Iran’s potential response to the killing of the leader of Hamas last month have also contributed to the rise in oil prices.
Geopolitical risks continue to loom over the oil market, with uncertainties about Iran’s potential retaliation against Israel. Three senior Iranian officials have indicated that only a ceasefire deal in Gaza would prevent direct retaliation from Iran. Additionally, concerns over weaker demand were raised as US crude oil stockpiles rose by 1.4 million barrels in the week ending Aug. 9, contrary to expectations for a 2.2 million barrel draw, marking the first build since late June.
China’s economic indicators have also impacted the oil market, with factory output growth slowing in July and refinery output declining for a fourth consecutive month. This underscores the uneven economic recovery in China and has contributed to limiting the market’s upside potential. Overall, while optimism around potential US interest rate cuts and geopolitical tensions have supported oil prices, concerns about weaker demand due to inventory gains and economic slowdowns in key markets have tempered the gains.
