Oil Prices Increase on US Crude Draw; Jobs Data Boosts Rate Cut Expectations

By Erwin Seba

Oil futures saw an increase on Thursday following a report from the U.S. Energy Information Administration (EIA) indicating a reduction in crude oil inventories, alongside data suggesting a cooling job market that raised hopes for potential interest rate cuts by the Federal Reserve.

Crude futures settled at $85.71 per barrel, marking a gain of 64 cents or 0.75%. The session peaked at $85.89, the highest price since May 1.

For July, U.S. West Texas Intermediate (WTI) futures, which were set to expire on Thursday, closed at $82.17 a barrel, an increase of 60 cents or 0.74%.

Phil Flynn, an analyst at Price Futures Group, noted, "The market is definitely getting a bounce."

According to the EIA, crude inventories dropped by 2.5 million barrels during the week ending June 14, totaling 457.1 million barrels. This decline surpassed analysts’ expectations of a 2.2 million-barrel decrease.

Inventories at the Cushing, Oklahoma, delivery hub for WTI increased by 307,000 barrels.

Trading for WTI was muted on Wednesday due to a U.S. public holiday, resulting in no settlement for that day. The more active August contract rose by 60 cents to $81.31.

Recent reports indicated a drop in the number of Americans filing new claims for unemployment benefits.

As the labor market slows along with the overall economy amid the Fed’s tight monetary policies aimed at curbing inflation, the prospect of a rate cut this year remains viable.

Potential reductions in rates could bolster oil prices, which have faced challenges this year amidst weak global demand. A rate cut could lower borrowing costs in the U.S., the world’s largest economy, enhancing oil appetite as production ramps up.

Furthermore, a growing geopolitical risk premium, particularly due to tensions in the Middle East, is likely to support oil prices, according to analyst Ricardo Evangelista from ActivTrades. Recent developments included Israeli forces intensifying their military actions in the central Gaza Strip and advancing into Rafa in the south.

However, expectations for an increase in inventories seem to outweigh worries about escalating geopolitical tensions for the moment, stated Priyanka Sachdeva, a senior market analyst at Phillip Nova.

JPMorgan commodities analysts highlighted that a seasonal increase in oil demand, refinery operations, and ongoing weather risks, along with OPEC+ production cuts, indicate that "oil balances should tighten and inventories should begin to draw during the summer months."

Additionally, the Bank of England decided to maintain its main interest rate at a 16-year high of 5.25% ahead of the national election in Britain on July 4.