Oil Prices Rise as Hopes for Rate Cuts Boost Demand Optimism

Oil prices experienced an uptick on Thursday as optimism regarding potential U.S. interest rate cuts surged, fueled by recent data indicating a cooling job market and declining inflation. This shift enhanced expectations for stronger crude demand.

As of 14:30 ET, oil prices saw a rise of 0.8%, settling at $79.23 per barrel, while Brent crude increased by 0.6% to reach $83.27 per barrel.

### Cooling Job Market and Slowing Inflation Renew Rate Cut Anticipation

Recent economic indicators, including jobless claims that exceeded expectations and easing consumer price pressures, have rekindled hopes for a rate cut in September. This optimism has contributed to a favorable outlook for crude demand. The uptick in demand speculation followed a report showcasing improvements in domestic demand, which was further bolstered by a seasonal average increase in gasoline and jet fuel consumption, as noted by ANZ Research based on data from the Energy Information Administration.

Market sentiment surrounding oil prices has also been affected by ongoing tensions in the Middle East, particularly following Israel’s military actions in Rafah amid diminishing hopes for a ceasefire in Gaza. Reports indicate clashes, including missile fire from Hezbollah towards Israel, which have intensified concerns in the region.

### OPEC+ Meeting Approaches

The Organisation of Petroleum Exporting Countries and its allies, collectively known as OPEC+, are set to convene on June 1 to assess their current output reduction strategies. These member states are implementing voluntary production cuts amounting to approximately 2.2 million barrels per day for the first half of 2024, led by Saudi Arabia’s continuation of its earlier voluntary cut.

These measures, combined with previously announced reductions since late 2022, bring the total committed cuts to about 5.86 million barrels per day, representing nearly 6% of global daily demand. Analysts at UBS anticipate that OPEC+ will likely agree to extend these voluntary cuts for at least an additional three months, aiming to maintain balance in the oil market.

UBS analysts referenced recent trends, noting that oil inventories have decreased less than expected and that prolonged high U.S. interest rates might influence OPEC+’s strategy to remain proactive and cautious regarding production policies.