July 18 2024: Oil prices extended their gains from the previous session on Thursday, driven by a larger-than-anticipated decline in U.S. crude stocks.
Brent futures increased by 58 cents, or 0.7%, reaching $85.66 a barrel by 0630 GMT, while U.S. West Texas Intermediate (WTI) crude rose by 75 cents, or 0.9%, to $83.60. Both contracts had settled higher on Wednesday.
U.S. Crude Inventories See Significant Drop
Data from the U.S. Energy Information Administration (EIA) revealed that U.S. crude inventories fell by 4.9 million barrels last week, surpassing the 30,000 barrels decline forecasted by analysts in a Reuters poll and the 4.4 million barrels drop reported by the American Petroleum Institute (API) trade group.
“Healthy demand signals from the U.S. outweigh concerns from modest Chinese growth last week,” commented Priyanka Sachdeva, senior market analyst at Phillip Nova. “Hopes of a Fed easing, which can boost economic growth, and current summer travel in the U.S. are ensuring enough traction in oil demand from the world’s largest economy,” she added.
Rate Cut Prospects Support Oil Market
The prospects of interest rate cuts in the coming months in both the U.S. and Europe helped support the oil market. Federal Reserve officials noted on Wednesday that the U.S. central bank is “closer” to cutting interest rates given the improved trajectory of inflation and a better-balanced labor market, potentially setting the stage for a reduction in borrowing costs in September.
Additionally, U.S. economic activity expanded at a slight to modest pace from late May through early July, with firms expecting slower growth ahead. Meanwhile, the European Central Bank (ECB) is almost certain to keep interest rates unchanged on Thursday but has signaled that its next move is likely to be a cut.
Other Factors Influencing Oil Prices
Investors are also awaiting policy news from a key leadership gathering in China, which is set to conclude on Thursday. The outcome of this meeting could influence future economic policies and impact global oil demand.
Moreover, the dollar eased for the third straight session on Thursday. A weaker dollar can boost demand for oil by making greenback-denominated commodities like oil cheaper for holders of other currencies.