oil prices

Oil prices climbed during Asian trade on Thursday, hovering close to three-month highs, aided by softer-than-expected U.S. inflation data, which alleviated some worries regarding rising interest rates.

However, the gains were somewhat tempered as traders digested recent data revealing an unexpected increase in U.S. oil inventories over the past week. Additionally, other indicators indicated weakening gasoline demand despite the summer season, which typically sees increased travel.

Nonetheless, oil prices breached significant bullish levels this week due to the impact of soft inflation data, which caused the dollar to weaken to 15-month lows. This benefited most commodities priced in the U.S. currency.

The subdued inflation reading, combined with recent labor market cooling, led to speculation that the Federal Reserve would need to adopt a less hawkish stance this year.

By 22:02 ET (02:02 GMT), Brent oil futures inched up by 0.1% to $80.34 per barrel, while West Texas Intermediate (WTI) crude futures rose by 0.2% to $75.92 per barrel. Both contracts experienced an increase of nearly $3 each over the past two sessions, trading close to their highest levels in three months.

The breakthrough of the $80-per-barrel threshold for crude oil and the $75-per-barrel level for WTI was considered a bullish signal for the market.

Oil prices were also supported by tighter physical markets resulting from production cuts by Saudi Arabia and Russia, which started to have an impact. Additionally, expectations of further stimulus measures in China, the largest oil importer globally, contributed to the price floor for oil.

Soft CPI Reading, Continued Rate Hikes Expected

Despite the softer consumer price index (CPI) inflation reading, markets are anticipating at least a 25 basis point interest rate hike by the Federal Reserve during the late-July meeting.

Although inflation eased in June, it remained significantly above the Fed’s annual target range of 2%. Core CPI inflation also remained persistently high. Therefore, the central bank is expected to continue raising rates in the near term, as indicated by several Fed officials this week.

Minneapolis Fed President Neel Kashkari emphasized the necessity of rate hikes to prevent stubborn inflation from becoming entrenched and potentially pressuring the U.S. economy.

U.S. Inventories Experience Significant Build, Weakness in Fuel Demand

U.S. crude inventories expanded by 5.95 million barrels during the week ending July 7, surpassing forecasts of a 0.48 million barrel increase. The reading was primarily driven by sluggish oil exports from the country during the week.

Of greater concern was a weekly indicator of petroleum products supplied to markets, which dropped to 18.7 million barrels per day, marking its lowest level since early January. Analysts highlighted the weakness in U.S. gasoline demand depicted by this data, as gasoline consumption serves as a vital driver of overall crude consumption in the country.

This reading further fueled fears that cooling U.S. economic activity could hinder fuel demand throughout the year.


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