- WTI looks all set to close on a bullish note for a straight third week.
- Firm Fed rate-cut prospects have improved Oil price appeal.
- Upside risks to the widening Middle East crisis have stemmed supply concerns.
West Texas Intermediate (WTI), futures on NYMEX, post a fresh eight-week high near $82.00 in Friday’s European session. The Oil price is set to close on a positive note for the straight third week amid firm speculation that the Federal Reserve (Fed) will start reducing interest rates from the September meeting.
According to the CME FedWatch tool, traders see a 64% chance of the central bank reducing interest rates from their current levels in the September meeting. The tool also shows that there will be two rate cuts this year instead of one, as projected by Fed officials in their latest dot plot.
For fresh cues on the interest rate outlook, investors will pay attention to the United States (US) core Personal Consumption Expenditure price index (PCE) data for May, which will be published at 12:30 GMT. Annually, price pressures are estimated to have decelerated to 2.6% from the prior release of 2.8%. On month-on-month, the underlying inflation data is expected to have grown at a slower pace of 0.1% from the prior release of 0.2%.
Soft inflation figures would boost expectations of early rate cuts by the Fed. The scenario will improve the overall demand outlook, which will be favorable for the Oil price.
On the geopolitical front, deepening risks of widening Middle East tensions have also prompted the Oil price’s appeal. Israeli Defense Minister Yoav Gallant warned a massacre in Lebanon if Hezbollah launches a war. The spread of war from Gaza to Lebanon would result in supply chain disruptions.
Brent Crude Oil FAQs
Brent Crude Oil is a type of Crude Oil found in the North Sea that is used as a benchmark for international Oil prices. It is considered ‘light’ and ‘sweet’ because of its high gravity and low sulfur content, making it easier to refine into gasoline and other high-value products. Brent Crude Oil serves as a reference price for approximately two-thirds of the world's internationally traded Oil supplies. Its popularity rests on its availability and stability: the North Sea region has well-established infrastructure for Oil production and transportation, ensuring a reliable and consistent supply.
Like all assets supply and demand are the key drivers of Brent Crude Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of Brent Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of Brent Crude Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 Oil producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact Brent Crude Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
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