Oil prices continued their upward trend to surge by over 1% this Thursday. This increase followed a significant cut in U.S. interest rates and a notable drop in global crude stockpiles. Both factors helped ease concerns over declining demand caused by weak consumption in China.
Brent and U.S. Crude Prices on the Rise
Brent futures, a global benchmark, rose by 1.7% to settle at $74.88 per barrel. Meanwhile, U.S. crude gained 1.5%, closing at $71.95 per barrel. The price recovery began after Brent crude fell below $69 earlier this month, a drop not seen in nearly three years. Since then, both Brent and U.S. crude have posted gains in five out of the last seven trading sessions.
Impact of U.S. Interest Rate Cuts on Oil Prices
The U.S. Federal Reserve‘s decision to cut interest rates by half a percentage point on Wednesday is seen as a key driver of this oil price recovery. While interest rate cuts typically stimulate economic growth and energy demand, some experts also view this move as a response to a weakening U.S. labor market.
On the other side of the Atlantic, the Bank of England maintained its interest rates at 5.0%, signaling a different approach to managing inflationary pressures. Despite these differing monetary policies, declining global crude stockpiles are expected to support oil prices in the coming months. UBS analysts predict that Brent crude could rise above $80 per barrel in the near future.
Crude Stockpiles and Geopolitical Tensions Add Support
Crude inventories in the U.S., the world’s leading oil producer, fell to a one-year low last week, according to government data. This trend may continue next week, as U.S. oil exports are expected to rebound following disruptions caused by Hurricane Francine. Macquarie strategists suggest this rebound could further reduce inventories.
Adding to the bullish sentiment, a counter-seasonal deficit of approximately 400,000 barrels per day is expected to support Brent prices in the $70 to $75 range throughout the next quarter, according to Citi analysts. However, oil price gains have been somewhat limited by weak demand from China, whose slowing economy is weighing on global oil consumption.
Lastly, geopolitical tensions in the Middle East are also contributing to the recent rise in oil prices. Explosions of communication devices used by Hezbollah in Lebanon have escalated tensions in the region. Although Israeli officials have not commented, sources suggest that the Israeli spy agency Mossad may be involved in the incidents.
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