Oil prices surged in Asian trading on Thursday, extending gains from the previous session as a softer-than-expected U.S. consumer inflation reading weakened the dollar and heightened expectations of interest rate cuts.
The anticipation of tighter global supplies in the upcoming months was further fueled by a larger-than-expected draw in U.S. inventories. Additionally, market attention was drawn to whether an incident in Galveston, Texas, had any impact on oil supplies.
Brent oil futures expiring in July climbed by 0.5% to $83.17 a barrel, while West Texas Intermediate crude futures rose by 0.5% to $78.57 a barrel by 20:32 ET (00:32 GMT). Both contracts exhibited upward momentum for the week, fueled partly by optimism surrounding increased fiscal stimulus in China. Beijing announced plans to commence a massive 1 trillion yuan ($138 billion) bond issuance as early as this week.
Concerns regarding potential supply disruptions arising from wildfires in Canada, which approached the country’s major oil sands regions, also contributed to the strength in prices.
Soft US CPI Data Weakens Dollar, Bolsters Oil Market Sentiment
Oil markets were buoyed by positive sentiment stemming from subdued readings on U.S. consumer price index inflation, which weighed on the dollar and led traders to increase bets on a September interest rate cut. The prospect of lower rates was tied to expectations that global economic activity would not cool as sharply as previously anticipated in 2024, thereby supporting oil demand.
The depreciation of the dollar also played a role in bolstering oil prices, as the commodity is priced in the greenback. A weaker dollar tends to stimulate international demand by making oil more affordable to purchase.
US Inventories Experience Larger-than-Expected Decline
Official data released on Wednesday revealed that U.S. oil inventories contracted by a larger-than-expected 2.5 million barrels in the week ending May 10, with gasoline and distillate stockpiles also witnessing unexpected decreases. This data bolstered hopes that demand was on the rise in the world’s largest fuel consumer, particularly as the travel-intensive summer season approaches.
The decrease in inventories could indicate tighter U.S. markets, although this notion was tempered by production levels remaining near record highs.
Attention was also directed towards an accident in Galveston, Texas, which resulted in an oil spill, amid concerns about potential supply disruptions.
Despite the positive market sentiment surrounding tighter supplies, the International Energy Agency (IEA) forecasted a weakening in demand in 2024. The IEA revised its demand outlook for 2024 downward by 140,000 barrels per day to 1.1 million bpd.
This outlook contrasted sharply with a forecast from the Organization of the Petroleum Exporting Countries (OPEC), which maintained that oil demand would amount to 2.25 million bpd in 2024, as stated in its monthly report released on Tuesday.