Oil Prices Rise as US Crude and Gasoline Stocks Decline

Oil prices experienced an increase on Thursday as traders reacted to declining crude inventories and growing optimism regarding potential U.S. interest rate cuts, influenced by weaker-than-expected economic indicators.

By 14:30 ET (18:30 GMT), futures were up 0.7%, settling at $82.17 per barrel, while the contract rose by 0.8% to reach $85.71 per barrel. There was no settlement for WTI on Wednesday due to a public holiday in the U.S.

U.S. Crude and Gasoline Stock Declines

In the week ending June 14, U.S. oil inventories decreased by 2.5 million barrels. Although this figure fell short of the anticipated 2.8 million-barrel drop, it was more favorable than the previous report that indicated a rise of 2.26 million barrels. Additionally, an unexpected reduction in weekly gasoline supplies of 2.3 million barrels, contrasting with predictions of a 1.5 million-barrel increase, along with a 1.7 million-barrel decline in distillate stocks, reinforced expectations for a typical rise in energy demand as summer approaches, following a sluggish start to the season.

Weaker Economic Data Spurs Rate Cut Speculations

The possibility of a Federal Reserve interest rate cut occurring sooner rather than later was also a factor that positively impacted oil prices amid a swirl of disappointing economic data. Recent reports indicated a slowing economy, with jobless claims rising to 238,000 against an expectation of 235,000, along with a notable 5.5% decline in manufacturing output for May. As a result, the likelihood of a rate cut in September rose slightly to 59.5%, up from 57.5% the previous day.

Geopolitical Risks from Middle East Conflicts

Geopolitical risks, particularly stemming from conflicts in the Middle East, have contributed to the support for oil prices. Recent reports confirmed that a Greek-owned vessel attacked by Yemen’s Houthi militants in the Red Sea has sunk after being struck by missiles and a remote-controlled explosive-laden boat. The Houthi militants have intensified their attacks on this crucial trade route since November, claiming solidarity with Palestinians in Gaza. Tensions escalated further as Israel’s Foreign Minister warned of potential "all-out war" with Hezbollah amid ongoing conflicts with Hamas.

Physical Market Shows Strength

There are also signs indicating strength in the physical oil market. Analysts noted that the prompt ICE Brent time spread has strengthened, and the Dated to Frontline Brent swap has moved further into positive territory, achieving its highest level since early May. Analysts predict a tightening of the market in the third quarter of the year following the implementation of OPEC+ production cuts, although the extent of this tightening will depend on demand performance moving forward.