Oil Prices Gain on Fed Rate Cut Hopes, Capped by OPEC+ Supply Increase

Oil prices experienced an upward trend on Thursday, driven by growing expectations that the U.S. Federal Reserve might cut interest rates in September.

This optimism, however, was tempered by the OPEC+ decision to increase oil supply and the report of rising U.S. crude inventories.

Brent crude oil, against which Nigerian oil is priced, rose by 57 cents, or 0.7% to $78.98 per barrel while the U.S. West Texas Intermediate (WTI) crude oil increased by 62 cents, or 0.8% to $74.69 per barrel.

This follows a more than 1% gain on Wednesday, a recovery after nearly $8 per barrel drop over the five sessions through Tuesday.

Market sentiment was buoyed by a recent Reuters poll, conducted from May 31 to June 5, which revealed that nearly two-thirds of economists predict the Federal Reserve will lower interest rates in September.

Lower interest rates generally reduce borrowing costs, potentially boosting economic activity and, consequently, oil demand.

However, this optimism was partially offset by mixed signals from the U.S. economy. The U.S. services sector, which represents a significant portion of the country’s economic output, showed signs of growth in May following a contraction in April. This could influence the Fed’s decision on interest rates.

Despite the current rise, oil prices are still projected to decline by about 3% for the week. This forecast is influenced by the latest decisions from OPEC+, which includes members of the Organization of the Petroleum Exporting Countries (OPEC) and their allies.

The group agreed on Sunday to extend most of their existing oil output cuts into 2025. However, they also allowed for voluntary cuts from eight members to be gradually reversed starting in October.

“Oil markets have over-reacted to the mildly negative OPEC+ meeting outcome. Demand indicators have certainly softened somewhat recently, but are not falling off a cliff,” Barclays analyst Amarpreet Singh noted in a recent report.

OPEC Secretary General Haitham Al Ghais defended the latest adjustments to the OPEC+ oil output deal, expressing confidence in sustained strong demand.

Also, Russia’s Deputy Prime Minister Alexander Novak stated that global oil demand is expected to increase gradually, with no peak in sight in the near future.

Adding to the market’s bearish sentiment were recent U.S. inventory figures. Data from the U.S. Energy Information Administration showed that U.S. crude stocks rose by 1.2 million barrels in the week ending May 31, contrary to analysts’ expectations of a 2.3 million barrel drawdown.

Furthermore, Saudi Arabia’s decision to cut its official selling prices (OSP) for July crude amid falling Middle East crude benchmarks and weaker profit margins for Asian refiners has also influenced market dynamics.