- Oil price finds a temporary cushion near $76.00 after correcting from a fresh three-week high near $78.80.
- Stronger Fed rate cut prospects have supported the decline in oil prices.
- Weak demand for stimulus in China has raised fears about global demand.
West Texas Intermediate (WTI) futures on NYMEX are finding support near $75.70 in the European session on Thursday after correcting from a fresh three-week high of $78.78 in the past two trading sessions. Oil prices are expected to remain sideways as the downside is being supported by uncertainty over the conflicts in the Middle East and overwhelming expectations of market participants that the Federal Reserve (Fed) will start cutting interest rates from the September meeting. While growing uncertainty over global oil demand has sealed the upside.
Investors have been anxious as Iran continues to prepare to retaliate for the killing of the Hamas leader by an Israeli airstrike in Tehran.
Meanwhile, investors see a Fed rate cut in September as a certainty as price pressures remain on a path toward the Fed’s 2% target. However, traders are divided on the extent by which the Fed will cut its key interest rates. Lower interest rates by the Fed are supportive of oil prices as increased liquidity flows result in improved economic activity and fuel consumption.
Investors’ confidence that the Fed will cut interest rates from September was boosted by a moderate rise in the US Consumer Price Index (CPI) data for July, released on Wednesday. The CPI report showed that annual core inflation, which excludes volatile food and energy prices, slowed as expected to 3.2%. Headline inflation surprisingly slowed to 2.9%, the lowest level seen in more than three years.
In the Asian region, growing concerns about China’s recovery have created uncertainty about global demand. Tuesday’s data from the People’s Bank of China (PBoC) showed that new bank loans in July fell to a 15-year low, suggesting weak demand in the domestic market. It should be noted that China is the world’s largest oil importer and poor demand conditions in the economy weigh heavily on the oil price.
Brent Crude FAQs
Brent crude oil is a type of crude oil found in the North Sea that is used as a benchmark for international oil prices. It is considered “light” and “sweet” due to its high gravity and low sulfur content, making it easy to refine into gasoline and other high-value products. Brent crude oil serves as a benchmark price for approximately two-thirds of the world’s internationally traded oil supplies. Its popularity is based on its availability and stability: the North Sea region has a well-established infrastructure for oil production and transportation, ensuring a reliable and steady supply.
Like all assets, supply and demand are the key drivers of the Brent crude oil price. As such, global growth can be a driver of higher demand and vice versa for weak global growth. Political instability, wars and sanctions can disrupt supply and affect prices. Decisions by OPEC, a group of major oil producing countries, are another key driver of price. The value of the US Dollar influences the Brent crude oil price as oil is predominantly traded in US Dollars, so a weaker US Dollar can make oil more affordable and vice versa.
Weekly oil inventory reports released by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of Brent crude oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories, it may indicate an increase in demand, which pushes up the price of oil. Higher inventories may reflect an increase in supply, which pushes down prices. The API report is released every Tuesday, and the EIA report the following day. Their results are usually similar, within 1% of each other 75% of the time. The EIA data is considered more reliable since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 oil-producing nations that collectively decide production quotas for member countries at semi-annual meetings. Their decisions often affect Brent crude oil prices. When OPEC decides to reduce quotas, it can restrict supply, driving up oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten additional non-OPEC members, the most notable of which is Russia.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
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