Crude oil prices pared some gains on Friday, June 28, but were on track for a weekly gain as investors weighed poor US fuel demand, but US inflation data for May boosted hopes for sooner interest rate cuts by the US Federal Reserve. Crude oil benchmarks gained almost six per cent in June, driven by the Middle East geopolitical risk premium and US economic and crude stock data.
Brent crude futures for August settlement, which expires on Friday, were last up eight cents at $86.47 per barrel. The more liquid September contract was down 0.14 per cent at $85.14. The US West Texas Intermediate (WTI) crude futures declined 11 cents, or 0.13 per cent, to $81.63. Brent was on track to gain around one per over the week, while WTI futures were headed for a 0.1 per cent loss.
What’s driving crude oil prices?
-While US oil production and demand rose to a four-month high in April, the demand for gasoline fell to 8.83 million barrels per day, its lowest since February, according to the Energy Information Administration or EIA’s Petroleum Supply Monthly report published on Friday.
-However, the US personal consumption expenditures (PCE) price index – the Fed’s preferred inflation gauge – was flat in May, lifting hopes for rate cuts in September. Still, the reaction in financial markets was minimal. For oil traders, the release passed unnoticed, according to analysts.
-Growing expectations of an imminent Fed easing cycle have sparked a risk rally across stock markets. Traders are now pricing in a 64 per cent chance of a rate cut in September, up from 50 per cent a month ago, according to CME FedWatch tool. Easing interest rates is a boon for oil as it raises consumer demand.
-Oil prices might not change much in the second half of 2024, with concern over Chinese demand and the prospect of higher supply from key producers countering geopolitical risks, according to news agency Reuters. Brent crude is expected to average $83.93 a barrel in 2024 with US crude averaging $79.72.
Where are prices headed?
According to Amarpreet Singh, analyst at Barclays, ‘’Oil prices have been converging with our fair value estimates recently, revealing the underlying strength in fundamentals through a clearing in the fog of war.” Barclays expects Brent crude to remain around $90 per barrel over the coming months.
Analysts noted that WTI crude oil futures pared early gains and closed marginally higher on Wednesday as an unexpected inventory addition raised concerns about weakening demand in the world’s top oil consumer.
‘’EIA inventory data released yesterday showed that US crude inventories increased by 3.591 million barrels during the previous week, defying market expectations for a three million barrel decline. US gasoline stocks also rose by 2.654 million barrels, but distillate stockpiles went down by 0.377 million barrels. However, downside remain limited amid escalating conflict in the Middle East, with brewing tensions between Israel and Lebanon’s Hezbollah,” said Kaynat Chainwala, AVP-Commodity Research, Kotak Securities.