On Thursday, June 20th, the US Energy Information Agency (EIA) reported a decline in crude oil inventories. The data showed that the cool-down of the job market has raised hopes for the possibility of the Federal Reserve's rate cut soon, causing an increase in crude oil futures prices.
WTI July futures rose by $ 0.60 per barrel, up over 0.73%, to close at $82.17 a barrel. As of publication, it is trading at $81.34 a barrel, up 0.78%. Brent crude futures closed at $85.71 a barrel, up $0.64 a barrel, or 0.75%. As of publication, it is trading at $84.83 a barrel, up 0.65%.
(West Texas Intermediate (WTI) crude oil futures chart, source: FX168)
Phill Flynn, an analyst at Price Futures Group said, " The market is definitely rebounding." The US Energy Information Agency said that crude oil inventories decreased by 5.9 million barrels in the week ending June 15th, while analysts had expected a decrease of 1.9 million barrels. Crude oil inventories at the Cushing, Oklahoma, delivery center fell by 1.3 million barrels.
(Brent crude oil futures chart, source: FX168)
[Market News Analysis]
"The market is definitely rebounding," said analyst Phil Flynn from Price Futures Group.
The US Energy Information Agency reported that crude oil inventories decreased by 5.9 million barrels in the week ending June 15th, while analysts had expected a decrease of 1.9 million barrels. Crude oil inventories at the Cushing, Oklahoma delivery center fell by 1.3 million barrels.
As a result of the US public holiday, WTI settlement was skipped on Wednesday, and trading remained low. The more active August contract rose 60 cents to $81.31 a barrel.
The number of Americans filing for unemployment benefits fell slightly last week, and the number of new housing starts in May fell to its lowest level in almost four years, indicating that economic activity remained moderate in the second quarter. As the Fed tightens its policies to combat inflation, momentum in the labor market is weakening in line with the overall economy. As inflationary pressure abates, the possibility of a rate cut remains this year.
The data released on Thursday, together with the flat retail sales performance from last month, makes it unlikely that the Fed will cut rates in September. Although policymakers are more bullish about the outlook, financial markets are betting on one or more rate cuts this year. The momentum of the economy is weakening as pressure from higher borrowing costs from the Fed increases.
Bill Adams, chief economist at Comerica, said: "Second-quarter economic indicators basically indicate that economic activity will slow down again. Weak economic activity and labor market data reinforce expectations that the Fed will begin cutting rates in a few months... the Fed will cut rates for the first time in September and again in December."
A rate cut may support oil prices, which have been dragged down this year by weak global demand. The US rate cut will lower the borrowing cost of the world's largest economy, stimulating demand for oil as production picks up.
Ricardo Evangelista, an analyst at ActivTrades, said that geopolitical risk premiums driven by the Middle East conflict could also continue to support oil prices. The Israeli army launched overnight attacks on central Gaza and tanks penetrated the southern Rafah area.
However, Phillip Nova's senior market analyst Priyanka Sachdeva said that expectations of increased inventories seemed to overshadow concerns about escalating geopolitical pressures.
JPMorgan's bulk commodity analysts said that rising summer oil demand, refinery operations, continued weather risk, and oil production cuts by OPEC+ meant that "summer oil balance should tighten and inventories should begin to fall,".