Oil prices rose on Wednesday, with benchmark Brent futures breaching $80 a barrel for the first time since May, after US inflation data spurred hopes the Federal Reserve may have fewer interest rate hikes in store for the world's biggest economy.
US data showed consumer prices rose modestly in June and registered their smallest annual increase in more than two years.
Markets expect one more interest rate rise, but oil traders hope that may be it. Higher rates can slow economic growth and reduce oil demand.
"This is the lowest number since the pandemic ... but it is important to keep in mind that this is still a transitory situation. But overall, traders are cheering this event," said Naeem Aslam, chief investment officer at Zaye Capital Markets, describing the inflation figures.
Oil prices up 2% to 10-week high on weaker US dollar, rising demand forecasts
Brent futures rose 91 cents, or 1.2%, to $80.33 a barrel by 1600 GMT, having risen by more than $1 earlier in the session. US West Texas Intermediate (WTI) crude was up $1.08, or 1.4% at $75.81 a barrel.
Oil prices also drew support from a weaker dollar and optimism surrounding Chinese stimulus, said Fiona Cincotta, senior financial markets analyst at City Index.
Forecasts from the US Energy Information Administration (EIA) and the International Energy Agency (IEA) point to the market tightening into 2024.
The IEA expects the oil market to stay tight in the second half of 2023, citing strong demand from China and developing countries combined with supply cuts from leading producers. New forecasts from the IEA are expected this week.
"The oil balance gets tighter either when supply is downgraded, or demand is revised up. If both happens at the same time the change can be seismic," said PVM analyst Tamas Varga referring to the EIA's outlook.
"Clearly, it is not worried about inflation-induced recession that could potentially dent global oil consumption."
Top producer Saudi Arabia pledged last week to extend a production cut of 1 million bpd in August, while Russia will cut exports by 500,000 bpd.
Pressuring prices was a US Energy Information Administration report of a much bigger-than-expected US crude stock build of nearly 6 million barrels last week.
Gasoline inventories remained largely unchanged at 219.5 million barrels, confounding analyst expectations for a big draw as drivers took to the roads during the Fourth of July holiday week, a situation that is "almost unheard of," said Phil Flynn, an analyst at Price Futures group.
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