Oil continues upward trend amid stronger demand, rate cut hopes

July 12, 2024 (MLN): Oil prices rose for the third consecutive session on signs of stronger demand, and growing confidence of a US interest rate cut.

Brent crude traded near $86.07 per barrel, up by 0.78% on the day.

While West Texas Intermediate crude (WTI) was at $83.38 per barrel, up by 0.92% on the day.

Data this week showed improved consumption of gasoline and jet fuel in the US over the summer travel season, while nationwide crude stockpiles posted another decline, as Bloomberg reported.

Prompt spreads pointed to a tightening of near-term conditions, especially for WTI, the benchmark contract for US oil.

US inflation cooled broadly in June to the slowest pace since 2021, boosting bets that the Federal Reserve will start to reduce borrowing costs this quarter.

That weighed on the US dollar — with a gauge of the currency set for the first back-to-back weekly drop since early May — making commodities more attractive for overseas buyers.

The unexpected, sequential drop in headline inflation “was a gift for pivot-bettors,” aiding risk assets, said Vishnu Varathan, head of economics and strategy for Mizuho Bank Ltd. in Singapore.

Oil has pushed higher this year as OPEC+ reined in production to tighten the market, offsetting supply increases from nations outside the cartel.

The group predicts that worldwide crude consumption will expand by more than 2 million barrels a day this year, although the International Energy Agency has a more cautious view as China’s economy cools.

While recent moves in headline prices have been lackluster, curbing volatility, metrics indicate underlying strength.

Brent’s prompt spread — the difference between the two nearest contracts — topped $1 a barrel in backwardation this week, more than twice the difference a month ago. For WTI, it has gapped out to $1.39 a barrel.

Copyright Mettis Link News