Mar 13 2024: On Wednesday, oil prices surged, driven by indications of robust global demand, particularly from the United States, while optimism surrounding potential rate cuts by the Federal Reserve further bolstered sentiment, despite persistent concerns about U.S. inflation.
According to market sources citing American Petroleum Institute data ahead of Wednesday’s official U.S. inventory report, both U.S. crude oil and fuel inventories experienced declines last week, signaling healthy demand.
Brent futures for May climbed by 83 cents, or 1%, reaching $82.75 a barrel by 0922 GMT. Similarly, U.S. West Texas Intermediate crude for April saw an increase of 59 cents, or 0.8%, reaching $78.15.
Tamas Varga of oil broker PVM remarked, “With anticipated global inventory reductions in the second quarter and possibly beyond, heightened geopolitical tensions affecting supply, and the looming rate cuts that will make borrowing and even oil trading cheaper, it’s almost perplexing why the market hesitates to break higher.”
Despite a higher-than-expected forecast for U.S. crude oil production and bearish economic data causing oil to decline on Tuesday, ongoing geopolitical tensions mitigated these declines.
In a demonstration of robust demand, the Organization of the Petroleum Exporting Countries (OPEC) maintained its projection for oil demand growth of 2.25 million barrels per day (bpd) in 2024, surpassing many other forecasts.
The International Energy Agency (IEA), which holds a more conservative outlook on demand growth, is set to update its forecasts on Thursday.
Oil prices, along with broader financial markets, also received support from the belief that slightly higher-than-expected U.S. inflation figures would not deter interest rate cuts by the middle of the year. Lower interest rates typically boost oil demand.
IG market strategist Yeap Jun Rong noted, “The risk environment has largely remained unaffected, fueled by the strong conviction that the current market expectation for a rate cut in June will suffice.”
Additionally, the unexpected decline in U.S. crude inventories and optimistic growth forecasts by OPEC provided further support for prices, according to Yeap.
In a client note, analysts at Capital Economics maintained their forecast for the Fed to commence easing policy “around June.”
