Oil prices increase as US inflation slows

Oil Prices Rise Amid Easing U.S. Inflation but Set for Weekly Decline

Oil prices rose on Friday, spurred by indications of easing inflationary pressures in the United States, the world’s largest oil consumer. Brent crude surpassed $86 per barrel, though it remained on track for a weekly decline. As of 0819 GMT, Brent crude futures increased by 72 cents, or 0.8%, reaching $86.12 per barrel. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures saw an uptick of 85 cents, or 1%, closing at $83.47 per barrel. This marked the third consecutive session of gains for both contracts.

Despite this rise, Brent futures were projected to drop by approximately 1% week-on-week after four consecutive weeks of gains, while WTI futures stayed relatively stable on a weekly basis. Investors were buoyed by data released on Thursday, which indicated a drop in U.S. consumer prices in June. This stoked optimism that the Federal Reserve might soon cut interest rates, a move likely to spur economic growth and, consequently, increase fuel consumption.

However, clear indications of future actions remain absent. Although Fed Chair Jerome Powell acknowledged the recent trend of easing price pressures, he emphasized the need for additional data to support the case for rate cuts. Market strategist Yeap Jun Rong of IG commented, "Cooling U.S. inflation numbers may support the case for the Fed to kick-start its policy easing process earlier rather than later, but it also adds to the series of downside surprises in U.S. economic data, which points to a clear weakening of the U.S. economy."

Strong U.S. Fuel Demand Offers Support

Signs of robust summer fuel demand in the U.S. provided additional support for oil prices. Government data released on Wednesday showed U.S. gasoline demand reached 9.4 million barrels per day (bpd) for the week ending July 5, marking the highest level since 2019 for the Independence Day holiday week. Additionally, on a four-week average basis, jet fuel demand hit its strongest point since January 2020.

Emril Jamil, a senior oil analyst at LSEG, stated, "The market will remain rangebound, paralysed by opposing forces of expected demand recovery fuelled by anticipation of a strong summer for fuels consumption ... but sentiment remains pegged by ongoing economic weakness and uncertain demand recovery."

This surge in fuel demand prompted U.S. refiners to increase activity, leading to a draw from crude oil stockpiles. Last week, the net input of crude for U.S. Gulf Coast refiners rose to more than 9.4 million bpd, the highest since January 2019, according to government data.

Chinese Demand Concerns

Conversely, weaker demand signals from China, the world's largest oil importer, might counteract the outlook from the U.S. and dampen prices. Tamas Varga of oil broker PVM remarked, "The recent downside correction is evidently over, although the speed of further ascent might be hindered by falling Chinese crude oil imports, which plummeted 11% in June from the previous year."

As the market continues to grapple with these contrasting factors, the trajectory of oil prices remains uncertain. The balance between robust U.S. fuel demand and potential setbacks from economic weaknesses and variable Chinese demand will be crucial in shaping future pricing trends.