Oil Rises Amid Mideast Tension, Gains Limited as Interest Rate Cuts Delayed – Reuters

By Georgina McCartney

HOUSTON (Reuters) – Oil prices rose on Wednesday, buoyed by ongoing tensions in the Middle East, although news that interest rate cuts may not begin until December limited gains following the Federal Reserve’s conclusion of its two-day meeting.

Futures prices increased by 68 cents, or 0.83%, settling at $82.60 a barrel, while U.S. West Texas Intermediate (WTI) crude futures climbed 60 cents, or 0.77%, to $78.50.

Last week, prices had dropped by more than 2% after OPEC and its allies announced plans to phase out output cuts starting in October.

U.S. Secretary of State Antony Blinken reported on Wednesday that the Palestinian militant group Hamas had proposed a series of changes to a U.S.-backed ceasefire proposal with Israel in Gaza, some of which are unfeasible, but added that mediators are continuing to seek resolution.

During a press conference in Doha with Qatar’s Prime Minister, Blinken mentioned that Hamas, which has controlled Gaza since 2007, had aimed to alter terms they had previously accepted in earlier negotiations.

Although the conflict has not significantly impacted global oil supply yet, investors have reacted to the risks, which has driven up crude futures.

Simultaneously, disappointment arose among investors as the Federal Reserve indicated that the potential timeline for interest rate cuts might extend until December, with officials projecting only a single quarter-percentage-point reduction for the year. This comes amidst rising concerns about the measures needed to control inflation.

U.S. consumer price data released on Wednesday reinforced expectations for a Fed rate cut in September, with Fed Chair Jerome Powell scheduled to speak later in the day.

Ben McMillan, a fund manager at IDX Advisors, remarked, "It will be interesting to see what Powell says; I don’t think there is any doubt that they will leave rates unchanged."

Higher borrowing costs typically slow economic growth, which could have a corresponding effect on oil demand.

"The market is holding its breath right now," noted Tim Snyder, an economist at Matador Economics. He added that if Powell were to deviate from what the Fed has published, it might signal some discord within the policy committee regarding their interest rate strategy.

In a related statement, European Central Bank Vice President Luis de Guindos mentioned that the ECB must proceed "very slowly" in reducing interest rates due to significant uncertainty surrounding the inflation outlook.

Additionally, U.S. crude oil stocks saw an unexpected increase last week, rising by 3.7 million barrels to 459.7 million barrels, contrary to expectations for a 1 million barrel draw, according to the Energy Information Administration (EIA).

Gasoline inventories also climbed more than projected, increasing by 2.6 million barrels to reach 233.5 million barrels, against analysts’ expectations for a 900,000-barrel rise.

Looking ahead, both the EIA and the International Energy Agency (IEA), along with OPEC, have recently updated their forecasts regarding the global oil supply-demand balance for 2024, predicting a decrease in global oil inventories.

These reports suggest there is limited downside potential for prices in the latter half of the year, according to Tamas Varga of oil broker PVM, with the IEA anticipating a more significant depletion of inventories compared to the other two organizations.