Oil prices continued their upward trend on Thursday, driven by a larger-than-expected decline in crude inventories in the United States last week, the world’s largest oil consumer.
Price movements
By 0340 GMT, Brent crude futures were up 32 cents, or 0.4 percent, at $85.40 a barrel. U.S. West Texas Intermediate crude was up 48 cents, or 0.6 percent, at $83.33.
Both benchmarks closed higher on Wednesday.
The latest data from the US Energy Information Administration revealed that crude inventories fell by 4.9 million barrels last week.
This surpasses the 4.4 million-barrel decline reported by the American Petroleum Institute trade group.
“Positive demand signals from the US counterbalanced concerns regarding slowing Chinese growth last week,” remarked Priyanka Sachdeva, senior market analyst at Philip Nova.
“Expectations of monetary easing, which might stimulate economic growth, coupled with the current summer travel season in the US, provide sufficient momentum for oil demand from the world’s largest economy,” Sachdeva added.
The prospect of interest rate cuts in the coming months in both the United States and Europe further bolstered the market.
Two Federal Reserve officials stated on Wednesday that the U.S. central bank is “approaching” a cut in interest rates as inflation moderates and the labor market attains greater balance, potentially setting the stage for a reduction in borrowing costs in September.
U.S. economic activity expanded at a slight to modest pace from late May through early July as businesses anticipated slower growth in the future.
Meanwhile, the European Central Bank is expected to maintain interest rates unchanged on Thursday, but has hinted that its next move will likely be a rate cut.
The dollar weakened today for the third consecutive session.
A weaker dollar might contribute to increased demand for oil as it makes greenback-denominated commodities, such as oil, more affordable for holders of other currencies.
Oil Prices Climb on Shrinking US Crude Inventories
Oil prices extended their upward trajectory on Thursday, buoyed by a larger-than-expected decline in US crude inventories last week, signaling robust demand from the world’s biggest oil consumer. The drop in inventories overshadowed concerns regarding slowing Chinese economic growth, providing a positive outlook for oil prices.
Key Price Movements
- Brent crude futures rose 32 cents, or 0.4 percent, to $85.40 per barrel by 0340 GMT.
- US West Texas Intermediate (WTI) crude futures increased 48 cents, or 0.6 percent, to $83.33 per barrel.
Both benchmarks had closed higher on Wednesday.
US Crude Inventory Draw Fuels Optimism
The US Energy Information Administration (EIA) reported a 4.9 million barrel decline in crude inventories for the week ending July 7. This decline exceeded the 4.4 million barrel drop reported by the American Petroleum Institute (API).
“Good demand signals from the US offset concerns regarding slowing Chinese growth last week,” explained Priyanka Sachdeva, senior market analyst at Philip Nova. “Hope for monetary easing that might boost economic growth, and the current summer travel season in the US, ensure enough impetus for oil demand from the world’s largest economy,” she added.
Interest Rate Cuts and Weaker Dollar Provide Further Support
Prospects of interest rate cuts in the coming months in both the United States and Europe provided additional support to the oil market.
Two Federal Reserve officials stated on Wednesday that the US central bank is “getting closer” to reducing interest rates as inflation improves and the labor market achieves a better balance. This suggests a potential rate cut in September.
The European Central Bank (ECB) is expected to keep interest rates unchanged on Thursday but has indicated that a rate cut is likely in the near future.
Meanwhile, the dollar declined for the third consecutive session. A weaker dollar might boost oil demand as it makes oil, priced in US dollars, cheaper for holders of other currencies.
Economic Outlook: Growth and Uncertainty
US economic activity expanded at a slight to modest pace from late May to early July. However, businesses anticipate slower growth ahead.
While potential interest rate cuts and a weaker dollar provide a positive outlook for oil prices, concerns regarding slowing global growth, particularly in China, remain a source of uncertainty. The global economic outlook will have a significant impact on oil demand in the coming months.
Table: Key Factors Influencing Oil Prices
| Factor | Impact |
|---|---|
| US Crude Inventory Draw | Positive (Increased demand) |
| Interest Rate Cuts (US and EU) | Positive (Economic stimulation) |
| Weaker Dollar | Positive (Makes oil cheaper for other currency holders) |
| Slowing Chinese Growth | Negative (Reduced demand) |
