Oil Price Analysis

By Nicole Jao

(Reuters) – Oil prices settled up more than 1% on Thursday amid expectations for a U.S. interest rate cut in the coming weeks, rebounding after four days of declines.

Brent crude futures increased by $1.17 (1.54%) to $77.22 a barrel, while U.S. West Texas Intermediate crude futures rose by $1.08 (1.5%) to $73.01.

Minutes from the Federal Reserve’s July meeting indicated most officials believe the bank is poised for an interest rate cut next month. Higher interest rates typically increase borrowing costs, potentially slowing economic activity and reducing oil demand.

John Kilduff, Partner at Again Capital, remarked that “the dollar has been sold off on the interest rate cut news,” noting speculation around a possible 50 basis point cut.

Fed Chair Jerome Powell’s upcoming speech at the annual central banking conference in Jackson Hole, Wyoming, is highly anticipated, as traders seek insights on rate expectations.

Recently, the U.S. dollar has weakened amid economic slowdown concerns, benefitting oil prices as buyers using other currencies pay less for dollar-denominated crude.

On Thursday, the U.S. Labor Department reported an uptick in jobless claims, suggesting a gradual cooling labor market, paving the way for potential interest rate cuts.

Additionally, a U.S. government report revealed that crude, gasoline, and distillate inventories fell more than expected last week, pointing to rising demand.

In the Middle East, Iranian-backed Houthi militants continued their attacks on international shipping in support of Palestinians amid the Israel-Hamas conflict.

A Greek-flagged oil tanker, carrying 150,000 tonnes of crude, was evacuated after being attacked in the Red Sea and now poses an environmental threat, according to the EU’s Red Sea naval mission “Aspides.”

Investors are closely monitoring OPEC+, the Organization of the Petroleum Exporting Countries and its allies, including Russia, which may reassess its plan to gradually unwind some output cuts in October. OPEC+ could pause or reverse its output raise plan if necessary.