June 6 2024: Oil prices edged higher on Thursday, rebounding from four-month lows as optimism over potential interest rate cuts in the coming months overshadowed an unexpected build in U.S. inventories.
Market Movements
- Brent Oil Futures: Up 0.1% to $78.44 a barrel at 08:55 ET (12:55 GMT).
- West Texas Intermediate (WTI) Crude Futures: Up 0.1% to $74.14 a barrel.
Both contracts had surged nearly 2% on Wednesday after dropping to their lowest levels in four months.
Rate Cut Hopes
Oil prices tracked broader market gains driven by weak U.S. labor data, which fueled speculation that the Federal Reserve might start cutting rates as early as September. Recent data showed an increase in first-time unemployment benefits claims, rising to 229,000 last week, above the expected 220,000.
Additional data indicated that private payrolls grew at a slower-than-anticipated rate in May, following a soft jobs openings report earlier in the week. The eagerly awaited monthly payrolls report is set to be released on Friday.
Globally, the sentiment for looser monetary policy was bolstered by a rate cut from the European Central Bank on Thursday and a similar move by the Bank of Canada on Wednesday.
Weekly Performance and Inventory Data
Despite the recent gains, crude benchmarks are still set to post weekly losses of around 4% due to signals from the Organization of Petroleum Exporting Countries and allies (OPEC+) about potentially scaling back production cuts this year.
Government inventory data released on Wednesday showed U.S. oil inventories increased by 1.2 million barrels for the week ending May 31, contrary to expectations for a draw of 2.1 million barrels. Distillates also saw a bigger-than-expected increase of 3.2 million barrels, while gasoline inventories grew by 2.1 million barrels, slightly below expectations.
The build in stockpiles has raised concerns about cooling demand in the U.S., the world’s largest fuel consumer, even as the summer travel season begins.
OPEC+ Production Plans
Analysts from Roth MKM noted that sustained weakness in oil prices could lead OPEC+ to reconsider its plans to begin phasing out production cuts. The cartel recently announced its intention to start scaling back 2.2 million barrels per day of production cuts from October 2024 to September 2025, which initially triggered a sharp decline in oil prices. However, if oil prices remain weak, OPEC+ may delay or even abandon plans to increase production.
(Article contributions by Ambar Warrick.)
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