Oil prices experienced a modest increase on Thursday, driven by an unexpectedly large reduction in U.S. crude stockpiles. Brent crude futures rose by 13 cents, or 0.2%, to settle at $85.21 per barrel, while U.S. West Texas Intermediate (WTI) crude increased by 31 cents, or 0.4%, reaching $83.16 per barrel. This follows significant gains on Wednesday when Brent climbed 1.6% and WTI rose 2.6%.
The U.S. Energy Information Administration (EIA) reported a notable decline of 4.9 million barrels in U.S. crude inventories last week, far surpassing the 30,000-barrel decrease predicted by analysts in a Reuters poll and the 4.4 million-barrel drop indicated by the American Petroleum Institute (API). This data underscores a tighter supply situation, contributing to the upward pressure on oil prices.
On the demand front, expectations of interest rate cuts in the United States and Europe in the coming months have provided additional support to the market. Lower interest rates generally stimulate economic activity and boost demand for oil. Federal Reserve officials suggested on Wednesday that the U.S. central bank is moving closer to reducing interest rates due to an improved inflation outlook and a more balanced labor market. This potential rate cut could occur as early as September, which would likely spur increased oil consumption.
Furthermore, the U.S. economy expanded at a slight to modest pace from late May through early July, with businesses anticipating slower growth ahead. This moderated economic activity, coupled with expectations of easing monetary policy, has bolstered market sentiment.
The European Central Bank (ECB) is also expected to maintain its current interest rates during its policy meeting on Thursday. However, the ECB has signaled that its next move is likely to be a rate cut, reflecting similar trends in the U.S. monetary policy outlook.
In addition to the developments in the U.S. and Europe, investors are closely watching for policy announcements from a key leadership meeting in China, which is set to conclude on Thursday. China’s economic policies and measures can have significant implications for global oil demand, given the country’s status as a major energy consumer.
Meanwhile, the U.S. dollar weakened for the third consecutive session on Thursday. A weaker dollar tends to make commodities priced in the greenback, such as oil, more affordable for holders of other currencies, thereby boosting demand. This currency movement has further contributed to the upward momentum in oil prices.
In summary, the combination of a substantial drop in U.S. crude inventories, anticipated interest rate cuts in major economies, and a weaker dollar has collectively supported the recent rise in oil prices. These factors indicate a tightening supply environment and potential growth in demand, which are likely to continue influencing the oil market in the near term. Investors will be closely monitoring further policy developments and economic indicators to gauge future trends in oil prices.