Oil snapped a four-week winning streak on weak US demand ahead of possible Fed rate cuts; Brent remains at $85

Crude oil futures settled slightly lower in the previous session as investors weighed weaker US consumer sentiment against fresh hopes of a US Federal Reserve interest rate cut in September. Recent US inflation data has prompted Wall Street pundits to raise their bets on a rate cut this year. Most analysts see two rate cuts before the end of the year if the cooling trajectory of inflation remains at its current pace.

Brent crude futures fell 37 cents to $85.03 a barrel. U.S. West Texas Intermediate crude futures were down 41 cents, or 0.5 percent, at $82.21 a barrel. For the week, Brent futures fell more than 1.7% after four weeks of gains. WTI futures were down 1.1% for the week. Turning to domestic prices, crude oil futures settled 0.07% higher at ₹6,898 per barrel on the multicommodity exchange (MCX).

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What is weighing on the price of crude oil?

-A monthly survey by the University of Michigan showed that US consumer sentiment fell to an eight-month low in July, although inflation expectations improved for the year ahead and beyond. US inflation cooled for a third straight month in June, the core gauge at a three-year low.

– The US Labor Department said the producer price index (PPI) rose 0.2% in June, slightly more than expected, as the cost of services rose. Still, investors expect the Fed to start cutting rates in September. Lower rates are expected to boost economic growth, which could increase fuel consumption.

-Oil prices were supported by U.S. gasoline demand, which official data on Wednesday showed rose to 9.4 million barrels per day (bpd) in the week ended July 5, the highest since 2019 this week. Demand for jet fuel on a four-week average was at its highest since January 2020.

-Strong demand for fuel has encouraged US refiners to ramp up activity and take advantage of crude stockpiles. U.S. Gulf Coast refiners’ net crude intake rose last week to more than 9.4 million bpd for the first time since January 2019, government data showed. Signs of weaker demand from China, the world’s biggest oil importer, could counter the U.S. outlook and weigh on prices.

-Analysts said the recent downward correction was apparently over, although the speed of further upswing could be hampered by falling Chinese crude imports, which fell 11% in June from a year earlier. The number of active U.S. oil rigs, an early indicator of future production, fell by one to 478 this week, the lowest since December 2021, energy services firm Baker Hughes reported.

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Where are prices headed?

Analysts said crude showed significant volatility and extended gains amid easing U.S. inflation and increased chances of a Fed rate cut at September policy meetings. The dollar index and U.S. 10-year bond yields fell to one-month lows, supporting oil prices.

“The potential for increased demand in the coming months could further support oil prices in international markets. We expect crude oil prices to remain volatile. Crude oil has support at $81.10-$80.50 and resistance at $82.10-$82.70. In INR, crude oil is supported at ₹6,840- ₹6,775, while resistance is at ₹6,970- ₹7,050,” said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

Disclaimer: The opinions and recommendations made above are those of individual analysts or brokerage firms, and not of Mint. We advise investors to consult certified experts before making any investment decisions.