Oil prices rose for the second consecutive session on Thursday amid growing expectations that the Federal Reserve would cut interest rates in September. However, the increase in US inventories and the OPEC+ plan to increase supplies tempered the gains. Nearly two-thirds of economists now expect the Federal Reserve to cut interest rates in September, according to a Reuters poll conducted from May 31 to June 5. Lower interest rates lead to reduced borrowing costs, which could stimulate economic activity and boost demand for oil.
However, the chances of interest rate cuts may diminish due to the rebound in the US services sector, which represents the vast majority of the country’s economic output, returning to growth in May after contracting in April. Despite the gains in oil prices on Thursday, prices are still heading towards weekly declines of around 4%, influenced by the recent supply decision from the Organization of the Petroleum Exporting Countries (OPEC) and its allies.
The group agreed on Sunday to extend most of its oil production cuts until 2025, but left room to gradually unwind voluntary cuts by eight members, starting from October. A Reuters document seen on Wednesday showed that Saudi Arabia also lowered its official selling prices for July crude. This move came amid lower Middle East crude benchmarks and weakened profit margins for Asian refineries.
Meanwhile, data from the US Energy Information Administration showed that US crude inventories jumped by 1.2 million barrels in the week ended May 31, compared to analysts’ estimates of a drawdown of 2.3 million barrels.
