Oil snaps 5-day losing streak after ECB cuts interest rates, US Fed in focus; Brent rises over $1 to near $80/bbl

Oil prices rose on Thursday as the European Central Bank cut interest rates for the first time in about five years and Denmark’s central bank followed suit with its own rate cut.

Brent crude futures were up $1.07, or 1.36 percent, at $79.48 a barrel by 11:22 a.m. EDT (1522 GMT). U.S. West Texas Intermediate crude futures were up $1.09, or 1.47 percent, at $75.16.

Oil benchmarks rose more than 1 percent on Wednesday, giving up a nearly $8 a barrel slide over the past five sessions that had sent prices to four-month lows.

On Thursday, the European Central Bank continued with its first interest rate cut of 2019, citing progress in tackling inflation but warning that the fight is far from over.

Denmark’s central bank has now cut its benchmark interest rate by 25 basis points to 3.35%.

Lower fuel costs and an easing of post-pandemic supply problems have helped push inflation down to 2.6% in the 20 countries that use the euro, from 10% at the end of 2022.

Investors are now less certain than they were a few weeks ago that inflation has receded enough for the ECB to institute a major easing cycle.

In the US, economists now predict the Federal Reserve will cut rates in September, according to a May 31-June 5 Reuters poll. Lower interest rates lower the cost of borrowing, which can accelerate economic growth and boost oil demand.

The number of Americans filing new jobless claims rose last week, and unit labor costs in the first quarter rose by less than previously thought, the Labor Department said.

While this shows a cooling labor market, it is unlikely to push the Fed to start cutting rates.

Meanwhile, trading house Trafigura’s chief economist Saad Rahim said OPEC’s decision to phase out some production cuts, combined with strong fuel supplies, had pushed oil prices lower.

OPEC, the Organization of the Petroleum Exporting Countries (OPEC) and allies, agreed on Sunday to extend most production cuts until 2025, but left room for a gradual reduction in voluntary cuts from eight members.

OPEC Secretary General Haitham Al Ghais and Russian Deputy Prime Minister Alexander Novak expressed optimism about continued strong oil demand.

“Oil markets overreacted to the slightly negative outcome of the OPEC meeting. Demand indicators have eased somewhat recently but have not fallen off a cliff,” Barclays analyst Amarpreet Singh wrote in a note.

U.S. crude oil inventories rose by 1.2 million barrels in the week to May 31, data from the U.S. Energy Information Administration showed. Analysts were expecting a reduction of 2.3 million barrels.

“Summer inventory draws should be enough to bring Brent oil back into the high $80-$90 range by September,” but prices could come under pressure in 2025 due to slower demand and increase in non-OPEC supply, JPMorgan analysts wrote in a note.

The bank expects Brent to average $83 this year and $75 next year.