Oil prices increase in early trade

6 Jun 2024 , 10:01 AM

Early Asian trade on Thursday saw a rise in oil prices as investors recovered from a selloff triggered by rising U.S. inventory levels and an OPEC+ plan to boost supply. The Federal Reserve is expected to decrease interest rates in September.

U.S. West Texas Intermediate crude prices increased 36 cents, or 0.49%, to $74.43, while Brent crude futures increased 27 cents, or 0.34%, to $78.68 a barrel.

According to a Reuters survey conducted from May 31 to June 5, nearly two-thirds of analysts now anticipate a reduction in interest rates in September, countering recent supply-side data that is unfavourable.

Reduced borrowing costs due to lower interest rates can stimulate the economy and increase the demand for oil.

The U.S. Energy Information Administration’s statistics revealed that U.S. crude stocks increased by 1.2 million barrels in the week ending May 31, defying analysts’ predictions of a draw of 2.3 million barrels. This led to an immediate decline in prices during early trading on Wednesday.

Prices did, however, subsequently recover to end the day up 1% as a result of increased interest rate optimism and the perception that the selloff had been too severe.

The Fed’s interest rate policy is far from certain, though. Activity in the United States’ services sector, which generates the great majority of the nation’s economic output, expanded in May after contracting the month before, a development that would make the case for interest rate reductions less compelling.

As a result of the Organisation of the Petroleum Exporting Countries’ and its allies’ agreement on Sunday to extend the majority of their oil output curbs until 2025 while leaving space for the gradual unwinding of voluntary cuts by eight members starting in October, oil prices have dropped.

In the Middle East, in apparent opposition to President Joe Biden’s peace proposal, Hamas leader Ismail Haniyeh declared on Wednesday that the militant organisation would demand a permanent end to the conflict in Gaza and Israel’s withdrawal as part of a ceasefire plan. Meanwhile, Israel launched a new military campaign against Hamas.

The Houthis of Yemen reportedly targeted a Greek-owned bulk tanker that was heading north in the Red Sea, according to a report released on Thursday by the British security company Ambrey.

However, market fundamentals have now surpassed geopolitical risks in importance.

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