Oil prices saw a continued upward trend on Thursday, building on gains from the previous session. The surge was attributed to signs of heightened demand in the United States, where recent data indicated slower inflation rates than what was anticipated by the markets. This development has bolstered arguments for a potential interest rate cut, which could potentially drive increased consumption.
Brent futures climbed by 32 cents, marking a 0.4% increase to reach $83.07 per barrel at 0620 GMT. Similarly, U.S. West Texas Intermediate crude (WTI) experienced a gain of 31 cents, also a 0.4% rise, reaching $78.94.
According to Yeap Jun Rong, an IG market strategist, “A more tamed read for U.S. April inflation and a far weaker-than-expected read in U.S. retail sales seem to offer room for the Fed to consider earlier rate cuts, with market expectations leaning more firmly for policy easing to kickstart in September this year.
Furthermore, the larger-than-expected drawdown in U.S. crude inventories for the last week provided some reassurance to the market. Additionally, geopolitical tensions persist in the Middle East, contributing to the overall uncertainty.
In April, U.S. consumer prices rose less than anticipated, aligning with financial market expectations for a September rate cut by the Federal Reserve. This could potentially temper the strength of the dollar and make oil more affordable for holders of other currencies.
Meanwhile, data from the Energy Information Administration (EIA) revealed declines in U.S. crude oil, gasoline, and distillate inventories, indicating a rise in both refining activity and fuel demand. Crude inventories fell by 2.5 million barrels to 457 million barrels in the week ended May 10, surpassing the consensus analyst forecast.
ANZ Research also pointed out that signs of slowing inflation and stronger demand were lending support to prices. They also highlighted the persistent geopolitical risks, particularly in the Middle East.
Amid these developments, the IEA (International Energy Agency) revised its forecast for 2024 oil demand growth slightly downward. The global oil demand this year is expected to grow by 1.1 million barrels per day (bpd), down 140,000 bpd from its previous forecast, largely due to weak demand in developed nations of the Organisation for Economic Co-operation and Development.