Brent climbs to $86 as cooling US labor market cuts hopes

By Deep Kaushik Vakil and Robert Harvey

LONDON (Reuters) – Oil futures hit a seven-week high on Thursday as fresh data on a cooling U.S. labor market boosted hopes the Federal Reserve could cut interest rates further this year .

They also fueled prices and worries about escalating conflict in the Middle East, with fears of supply disruptions in the major oil-producing region.

Brent crude futures rose 78 cents, or 0.9 percent, to $85.85 a barrel by 1349 GMT, having previously touched $85.89, a high not seen since May 1.

U.S. West Texas Intermediate (WTI) futures for July, which expire on Thursday, gained 70 cents, or 0.9 percent, to $82.27.

There was no WTI settlement on Wednesday due to a US public holiday, which kept trading largely light. The more active August contract rose 60 cents to $81.31.

The number of Americans filing new claims for unemployment benefits fell last week.

Labor market momentum has weakened in tandem with the overall economy as the Federal Reserve tries to control inflation. With that pressure easing, a rate cut this year remains on the table.

That could boost oil prices, which have been dragged down this year by weak global demand. A US rate cut would reduce borrowing in the world’s largest economy, boosting appetite for oil as production rises.

Oil prices are also likely to remain supported by a rising geopolitical risk premium driven by the Middle East conflict, ActivTrades analyst Ricardo Evangelista said.

Israeli forces pounded areas in the central Gaza Strip overnight, while tanks deepened their advance into Rafah in the south.

However, expectations of building inventories appear to be overshadowing fears of escalating geopolitical stress for now, said Priyanka Sachdeva, senior market analyst at Phillip Nova.

Investors await the release of U.S. oil stockpiles data on Thursday, a day later than usual due to Wednesday’s Juneteenth holiday.

An industry report on Tuesday showed U.S. crude oil inventories rose by 2.264 million barrels in the week ended June 14, while gasoline stocks fell, market sources said, citing figures from the American Petroleum Institute.

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A summer surge in oil demand, refineries and ongoing weather risks added to extended production cuts by the OPEC+ producer group mean that “oil balance sheets should tighten and inventories should start to draw summer months,” JPMorgan commodities analysts wrote.

Investors also digested the Bank of England’s decision to keep its key interest rate unchanged at a 16-year high of 5.25% ahead of Britain’s national election on July 4.

(Reporting by Robert Harvey and Paul Carsten in London, Deep Vakil in Bengaluru, Laila Kearney in New York and Jeslyn Lerh in Singapore; Editing by David Goodman and Jan Harvey)