Oil Prices Edge Higher on Hopes of U.S. Rate Cuts Amid Global Demand Concerns

Oil prices saw a modest rise on Thursday as investors remained optimistic that potential U.S. interest rate cuts could stimulate economic activity and boost fuel consumption.

However, concerns over sluggish global demand, particularly from China, limited the gains.

Brent crude oil, against which Nigerian oil is priced, climbed 19 cents, or 0.24% to settle at $79.95 per barrel. U.S. West Texas Intermediate (WTI) crude futures also rose by 23 cents, or 0.3%, reaching $77.21 per barrel.

The slight rebound in oil prices came after a more than 1% decline on Wednesday, driven by an unexpected increase in U.S. crude inventories and easing fears of a wider Middle East conflict.

Despite the inventory build-up, which typically signals weaker demand, investor sentiment was buoyed by expectations that the U.S. Federal Reserve may soon begin cutting interest rates.

Recent U.S. consumer price data showed moderate inflation in July, with the annual increase slowing to below 3% for the first time in over three years.

This development has strengthened the belief that the Federal Reserve might cut rates as early as next month, which could spur economic growth and, in turn, increase demand for oil.

“The market experienced a correction during Asian trade as oil had been oversold on Wednesday,” said Yuki Takashima, an economist at Nomura Securities. “Investors are now betting on the possibility of the Fed starting to cut rates next month, which has provided some support to oil prices.”

Geopolitical risks also continued to influence the market. Concerns remain over Iran’s potential response to the recent killing of a Hamas leader, with three senior Iranian officials indicating that only a ceasefire in Gaza could prevent direct retaliation against Israel.

This uncertainty has led to increased options trading activity, with market participants seeking protection against significant price spikes.

However, the optimism surrounding U.S. rate cuts was tempered by ongoing concerns about global demand. U.S. crude oil stockpiles unexpectedly rose by 1.4 million barrels in the week ending August 9, marking the first increase since late June.

Also, China’s factory output growth slowed in July, and refinery output fell for the fourth consecutive month, underscoring the uneven recovery in the world’s second-largest economy.

Looking ahead, the market’s focus will shift to U.S. retail sales data for July, following mixed economic signals from China.

A disappointing figure could trigger a short-term bearish movement in oil prices, according to Kelvin Wong, a senior market analyst at OANDA.

Analysts remain divided on the future trajectory of oil prices. While Nomura’s Takashima anticipates that concerns over global demand will keep oil prices under pressure, with WTI potentially dropping toward the $72 mark, independent market analyst Tina Teng predicts that prices could rise in the third quarter.

Teng points to factors such as Middle East tensions, central bank rate cuts, and a weakening U.S. dollar as potential drivers pushing Brent prices toward $90 per barrel.

As the global energy market continues to navigate these complex dynamics, oil prices are expected to remain volatile, with investors closely monitoring economic indicators and geopolitical developments in the weeks ahead.