Oil prices were relatively stable on Thursday, with Brent crude futures up 0.3% at $78.66 per barrel and WTI crude futures up 0.4% at $74.38. This came as growing expectations of a U.S. Federal Reserve interest rate cut in September helped offset the bearish impact of higher U.S. inventories and OPEC+’s plans to gradually increase supply.
Oil benchmarks had recovered more than 1% on Wednesday, after sliding by nearly $8 a barrel over the previous five sessions. Nearly two-thirds of economists are now predicting the Fed will cut interest rates in September, according to a Reuters poll. Lower interest rates can incentivize economic activity and boost oil demand, providing support for prices.
However, the market is still headed for weekly declines of more than 3%. Trafigura’s chief economist Saad Rahim noted that OPEC+’s decision to phase out some of its output cuts from October, combined with strong supply in the products market, has driven oil prices lower. OPEC+ agreed on Sunday to extend most of its production cuts into 2025, but left room for voluntary cuts from eight members to be unwound gradually.
OPEC Secretary General Haitham Al Ghais and Russian Deputy Prime Minister Alexander Novak defended the OPEC+ deal and expressed optimism about continued strong oil demand. Barclays analyst Amarpreet Singh wrote that oil markets have “over-reacted” to the OPEC+ outcome, as demand indicators have softened but are not “falling off a cliff.”
Meanwhile, data from the U.S. Energy Information Administration showed a surprise build in U.S. crude inventories of 1.2 million barrels last week, against analysts’ expectations of a 2.3 million barrel drawdown. This added to the recent bearish sentiment.
J.P.Morgan analysts forecast Brent to average $83 this year and $75 next year, with summer inventory draws expected to push prices back into the high $80s-$90 range by September, before potential pressure in 2025 from slower demand and non-OPEC supply growth.