April 20, 2024
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OIL & GAS

Oil Prices Rise on Strong Demand and Rate Cut Hopes

Oil prices climbed on Wednesday, driven by robust global demand, particularly from the United States, and optimism surrounding potential rate cuts by the Federal Reserve.

Despite lingering concerns over stubborn U.S. inflation, signs of healthy demand and expectations of inventory draws provided support to oil markets, Reuters reports.

Brent futures for May surged by 1% to reach $82.75 a barrel, while U.S. West Texas Intermediate crude for April saw gains of 0.8% to hit $78.15 a barrel.

The uptick in prices was fueled by reports indicating a decrease in U.S. crude oil and fuel inventories, as per American Petroleum Institute data.

“With envisaged global stock draws in the second quarter and possibly beyond, heightened geopolitical tension with palpable impact on supply and the approaching rate cuts that will make borrowing and even oil trading cheaper, it is almost beyond comprehension as to why the market is reluctant to break higher,” said Tamas Varga of oil broker PVM.

Although oil experienced a dip on Tuesday due to concerns over higher U.S. crude oil production and bearish economic indicators, ongoing geopolitical tensions mitigated losses.

The Organization of the Petroleum Exporting Countries (OPEC) maintained its optimistic forecast for oil demand growth in 2024, contributing to market confidence, despite dissenting views from other organizations like the International Energy Agency (IEA), which is set to release updated forecasts on Thursday.

Market sentiment remained buoyant amid perceptions that slightly elevated U.S. inflation levels would not deter the Federal Reserve from implementing interest rate cuts by mid-year. Lower interest rates typically stimulate oil demand, further supporting price gains.

The unexpected decline in U.S. crude inventories, coupled with upbeat growth projections by OPEC, provided additional backing to oil prices, reinforcing the positive market sentiment.

Analysts at Capital Economics echoed this sentiment, maintaining their forecast of policy easing by the Federal Reserve around June.

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