The growing expectation that the US Federal Reserve will soon start to cut rates provides support
28 June 2024 - 07:48
byShariq Khan and Trixie Yap
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New York/Singapore — Oil prices rose in Asian trade on Friday and were poised for a third consecutive weekly jump, buoyed by the growing expectation that the US central bank will soon start to cut interest rates.
Brent crude futures for August settlement, which expire on Friday, rose 41c, or 0.47% to $86.80 a barrel by 4.39am GMT. The Brent contract for September was up 0.5% at $85.69 a barrel.
US West Texas Intermediate (WTI) crude futures for August delivery rose 50c, or 0.61%, to $82.24 a barrel.
Brent and WTI futures have gained nearly 2% so far this week, with both benchmarks also on track for gains of slightly more than 6% month on month — erasing losses earlier in May.
“Crude oil edged higher despite weak near-term fundamentals,” said ANZ analysts, referring to unexpected gains in US crude inventories despite expectations of a drawdown during the summer peak demand.
“Prices gained amid a risk-on tone across broader market ... triggered by data that signalled further US labour market weakness,” they added in a client note.
The growing expectation of an imminent Fed easing cycle has sparked a risk rally across stock markets. Traders are now pricing in a 64% chance of a first Fed cut in September, up from 50% a month ago, according to the CME FedWatch tool.
Easing interest rates could be a boon for oil as it could increase demand from consumers.
The US personal consumption expenditures (PCE) price index, a key measure for inflation by the Fed, is due at 12.30pm GMT and could provide further clues on the interest rate cut timeline this year.
Oil supply has also come under pressure from weather-related disruptions which could worsen in the coming weeks. Heavy rains have caused Ecuador's production to decline by 100,000 barrels a day over the past week, FGE Energy said on Friday.
The US Gulf Coast, home to the bulk of the country’s energy and export infrastructure, could also be hit by adverse weather in coming days with the US National Hurricane Center tracking at least one weather system that could become a cyclone and headed towards the region.
A recovery in physical refining margins also buoyed markets, with the Singapore complex refining margins averaging $1 higher in June at around $3.60 a barrel from May.
“Recent improvement in light distillate cracks has improved complex refining margins in Asia.... Heading to [the third quarter], we expect refining margins to remain around current levels. We expect [petrol] to continue rising through to August, though this will be offset by diesel cracks, which are expected to ease amid lengthening East of Suez balances,” said Ivan Mathews, head of Asia refining at FGE.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Oil firmer on upbeat economic outlooks
The growing expectation that the US Federal Reserve will soon start to cut rates provides support
New York/Singapore — Oil prices rose in Asian trade on Friday and were poised for a third consecutive weekly jump, buoyed by the growing expectation that the US central bank will soon start to cut interest rates.
Brent crude futures for August settlement, which expire on Friday, rose 41c, or 0.47% to $86.80 a barrel by 4.39am GMT. The Brent contract for September was up 0.5% at $85.69 a barrel.
US West Texas Intermediate (WTI) crude futures for August delivery rose 50c, or 0.61%, to $82.24 a barrel.
Brent and WTI futures have gained nearly 2% so far this week, with both benchmarks also on track for gains of slightly more than 6% month on month — erasing losses earlier in May.
“Crude oil edged higher despite weak near-term fundamentals,” said ANZ analysts, referring to unexpected gains in US crude inventories despite expectations of a drawdown during the summer peak demand.
“Prices gained amid a risk-on tone across broader market ... triggered by data that signalled further US labour market weakness,” they added in a client note.
The growing expectation of an imminent Fed easing cycle has sparked a risk rally across stock markets. Traders are now pricing in a 64% chance of a first Fed cut in September, up from 50% a month ago, according to the CME FedWatch tool.
Easing interest rates could be a boon for oil as it could increase demand from consumers.
The US personal consumption expenditures (PCE) price index, a key measure for inflation by the Fed, is due at 12.30pm GMT and could provide further clues on the interest rate cut timeline this year.
Oil supply has also come under pressure from weather-related disruptions which could worsen in the coming weeks. Heavy rains have caused Ecuador's production to decline by 100,000 barrels a day over the past week, FGE Energy said on Friday.
The US Gulf Coast, home to the bulk of the country’s energy and export infrastructure, could also be hit by adverse weather in coming days with the US National Hurricane Center tracking at least one weather system that could become a cyclone and headed towards the region.
A recovery in physical refining margins also buoyed markets, with the Singapore complex refining margins averaging $1 higher in June at around $3.60 a barrel from May.
“Recent improvement in light distillate cracks has improved complex refining margins in Asia.... Heading to [the third quarter], we expect refining margins to remain around current levels. We expect [petrol] to continue rising through to August, though this will be offset by diesel cracks, which are expected to ease amid lengthening East of Suez balances,” said Ivan Mathews, head of Asia refining at FGE.
Reuters
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