Crude Oil News Today: Will Rate Cuts Lead to Increased Demand and Higher Prices?

Oil Prices Settle Higher for Week

Oil prices closed higher last week, with Brent crude achieving its first weekly gain in three weeks. Economic indicators from China and the U.S., the world’s top two oil consumers, have bolstered hopes for increased demand, providing a lift to crude prices.

Last week, Light Crude Oil futures settled at $79.58, up $1.81 or +2.33%.

China’s Economic Data

China’s industrial output rose by 6.7% year-on-year in April, driven by a recovery in its manufacturing sector. This signals stronger potential demand for oil. Additionally, China announced significant measures to stabilize its property sector, further supporting market optimism. However, a decline in China’s annual refined output may have offset some of this positive sentiment. The drop in oil and refined product inventories at global trading hubs has also contributed to market optimism, reversing a previous trend of rising stockpiles.

U.S. Oil and Economic Indicators

In the U.S., the oil rig count increased by one to 497, marking the first rise in four weeks, according to Baker Hughes. Concurrently, a fire at Russia’s Tuapse oil refinery, following Ukrainian drone attacks, has introduced supply uncertainties. U.S. crude prices edged up after data indicated a stabilizing job market, which could lead the Federal Reserve to consider interest rate cuts by autumn. Lower interest rates are anticipated to stimulate economic activity, thereby boosting oil demand.

Inventory and Production Data

The Energy Information Administration (EIA) reported a decline of 2.5 million barrels in U.S. crude stockpiles last week, driven by increased refining activity and fuel demand. Refinery runs increased by 307,000 barrels per day, raising utilization rates to 90.4% of capacity. Despite this drawdown, gasoline demand remains below seasonal norms, raising concerns ahead of the peak summer driving season.

Divergent Demand Forecasts

The International Energy Agency (IEA) has revised its 2024 oil demand growth forecast down to 1.1 million barrels per day, citing weaker industrial activity. This contrasts with OPEC’s forecast of a 2.25 million barrels per day increase, highlighting significant divergence in demand expectations. This discrepancy underscores uncertainty in global demand projections, a critical factor for traders.

Weekly Market Forecast

Given the easing inflation, potential for an early Federal Reserve rate cut, and signs of increasing fuel demand, the short-term outlook for crude oil prices is cautiously bullish. If the Fed cuts rates sooner than expected, economic activity could accelerate, boosting oil demand.

Traders should watch for a potential price range of $76 – $82 per barrel in the near term, contingent on sustained refining activity and inventory drawdowns. Continued strong refining activity and lower inventories suggest upward pressure on prices.

Technically, building a support base near the $76.91 to $74.49 retracement zone will signal buyer presence. However, unless prices overcome the $82.01 weekly pivot, a significant rebound remains uncertain.