Energy
Thursday, June 6th, 2024 3:25 pm EDT
Key Points
- Crude oil futures surged for a second consecutive day on Thursday following the European Central Bank’s decision to cut interest rates for the first time in five years, coupled with expectations of a similar move by the Federal Reserve in September.
- Oil prices rebounded over 1% on Wednesday, breaking a downward trend initiated by the OPEC+ decision to increase supply later this year, fueled by weaker-than-expected private payrolls, which bolstered hopes of a Fed rate cut.
- The recovery in oil prices, reflected in West Texas Intermediate (WTI) crude rising to $74.66 a barrel and Brent crude climbing to $79.95 a barrel, suggests that the market may be stabilizing despite concerns over OPEC+ production cuts and softening demand indicators.
Crude oil futures experienced a two-day rally as the European Central Bank cut interest rates for the first time in five years, prompting speculation that the Federal Reserve might also lower rates in September. On Wednesday, oil prices rebounded, closing over 1% higher, breaking a downward trend initiated by OPEC+’s decision to boost supply later this year. The rebound was fueled by weaker-than-expected private payroll data, which heightened expectations of a Fed rate cut, seen as a catalyst for economic growth and increased oil demand.
Analyst Tamas Varga from PVM noted that the disappointing May private payroll figures suggested a weakening labor market, which aligned with the Federal Reserve’s interests. This economic scenario pushed U.S. equities to new heights, which in turn lifted oil prices. As a result, West Texas Intermediate (WTI) crude for July settled at $74.66 per barrel, up 0.8%, marking a 4.2% increase year-to-date. Similarly, Brent crude for August rose to $79.95 per barrel, up 0.69%, with a 2.52% year-to-date gain. RBOB Gasoline futures for July increased by 0.59%, totaling a 12.58% rise this year, and Natural Gas for July surged by 4%, now up 14% year-to-date.
Despite this week’s 3% decline in oil prices, following OPEC+’s announcement to phase out 2.2 million barrels per day of production cuts from October through September 2025, recent gains suggest the market may be stabilizing. TD Securities’ senior commodity strategist Ryan McKay indicated that the oil market might be finding a floor. JPMorgan analysts attributed the initial sell-off to the OPEC+ decision but noted that weak manufacturing and jobs data had compounded concerns about the U.S. economy. They speculated that Saudi Arabia and Russia might sustain their production cuts through the end of the year if demand fails to absorb the additional supply.
JPMorgan further suggested that while rising oil inventories are currently a concern, they are expected to transition to draws in the third quarter due to the OPEC+ cuts remaining effective until at least October. Barclays analyst Amarpreet Singh commented that the market’s reaction to the OPEC+ meeting was overly pessimistic. Singh pointed out that although demand indicators have shown some recent softening, they are not collapsing, implying that the market’s concerns might be exaggerated.
Overall, the recent developments in the oil market reflect a complex interplay of supply decisions by OPEC+, economic data influencing central bank policies, and market reactions to potential shifts in demand. The anticipation of central bank rate cuts and subsequent economic growth appears to be a significant factor driving the current recovery in oil prices, despite underlying concerns about the global economic outlook.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/06/06/crude-oil-prices-today.html
