July 22 2024: Oil prices increased in Asia on Monday as investors anticipated potential interest rate cuts by the U.S. Federal Reserve, possibly as soon as September.
Brent crude futures gained 32 cents, or 0.39%, reaching $82.95 a barrel by 0651 GMT. U.S. West Texas Intermediate crude futures rose by 34 cents, or 0.42%, to $80.47.
“Since the June FOMC meeting, inflation and labor market data have signaled that disinflation and labor market rebalancing are in place, which we expect will allow the Fed to begin its interest rate cutting cycle in September,” ANZ Research noted.
The U.S. Federal Reserve is scheduled to review its policy on July 30-31, with investors expecting rates to remain unchanged. However, they are looking for further signs of a possible rate cut in September.
The news of President Joe Biden dropping his reelection bid in favor of Vice President Kamala Harris had a minimal impact on oil markets. Biden endorsed Harris to face Republican Donald Trump in the upcoming election.
“We think the ability of the U.S. president to influence U.S. oil production is probably overrated,” said Suvro Sarkar, energy sector team lead at DBS Bank, pointing out that U.S. output reached record highs last year despite the Biden administration’s climate initiatives.
“If anything, a Trump presidency could influence higher demand for oil in the U.S., given his anti-EV stance,” Sarkar added. This potential increase in demand could offset some support from recent OPEC+ production cuts, according to Tony Sycamore, market analyst with IG.
Sycamore further noted, “The flipside to unrestricted oil production in the U.S. could well be lower oil prices, which may have the unintended impact of forcing marginal producers at lower prices to mothball production.”
Slower-than-expected economic growth of 4.7% in China for the second quarter raised concerns about the country’s oil demand, continuing to weigh on prices.
China surprised markets on Monday by lowering a key short-term policy rate and benchmark lending rates to stimulate the economy. On Sunday, China released a policy document following a leaders’ meeting last week, outlining ambitions such as developing advanced industries and improving the business environment, but analysts did not see any imminent structural shifts in the world’s second-largest economy.
