Oil Prices Up on Slower US Inflation and Strong Demand, Says Reuters

By Emily Chow

SINGAPORE (Reuters) – Oil prices continued to rise on Thursday, buoyed by indications of increased demand in the United States. Recent data revealed slower-than-expected inflation, which strengthens the case for an interest rate cut that could lead to higher consumption.

Brent crude futures climbed 32 cents, or 0.4%, reaching $83.07 a barrel at 0620 GMT, while U.S. West Texas Intermediate (WTI) crude increased by 31 cents, also 0.4%, to $78.94.

Market strategist Yeap Jun Rong from IG commented, "The less aggressive reading of U.S. inflation in April, combined with a much weaker-than-anticipated figure for retail sales, suggests that the Federal Reserve may consider earlier rate cuts. Expectations are growing that policy easing could begin in September this year." He added that the larger-than-expected decrease in oil inventories last week provided some support, despite ongoing geopolitical tensions in the Middle East.

U.S. consumer prices showed a smaller increase than anticipated in April, which has fueled expectations for a rate cut by the Federal Reserve in September. Such a move could reduce dollar strength, making oil more affordable for those using other currencies.

In addition to this, data from the Energy Information Administration (EIA) indicated that U.S. crude oil, gasoline, and distillate inventories have decreased, signaling rising refining activity and fuel demand. Crude inventories fell by 2.5 million barrels to 457 million barrels for the week ending May 10, significantly surpassing the forecasted 543,000-barrel drop.

ANZ Research noted that signs of slowing inflation and stronger demand were bolstering oil prices, with geopolitical risks in the Middle East adding to market dynamics.

In recent developments in the region, Israeli forces engaged with Hamas militants across Gaza, including Rafah, known to have been a civilian refuge. Mediated ceasefire talks by Qatar and Egypt remain at a standstill, with Hamas requesting the cessation of hostilities and Israel insisting on the complete dismantling of the militant group.

However, price gains were limited after the International Energy Agency (IEA) revised its forecast for 2024 oil demand growth downwards, highlighting a growing disparity between its outlook and that of the Organization of the Petroleum Exporting Countries (OPEC). The IEA now estimates global oil demand growth this year to be 1.1 million barrels per day, a reduction of 140,000 barrels from its previous forecast, largely due to weak demand in developed countries within the Organisation for Economic Co-operation and Development.