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Oil Prices Rise Amid Decline in U.S. Crude Inventories and Cooling Job Market
Oil futures made gains on Thursday driven by a reported decline in U.S. crude oil inventories and data indicating a slowing jobs market, which has fueled speculation that the Federal Reserve might cut interest rates sooner than previously expected. As of 1305 CDT (1805 GMT), Brent crude futures had risen by 54 cents, or 0.63%, reaching $85.61 per barrel, the highest level since May 1. Meanwhile, U.S. West Texas Intermediate (WTI) futures for July, set to expire on Thursday, saw an increase of 75 cents, or 0.94%, to $82.32 per barrel.
Phil Flynn, an analyst with Price Futures Group, commented, "The market is definitely getting a bounce." He attributed this to crude inventories falling by 5.9 million barrels in the week ending June 15, surpassing analysts' expectations of a 1.9 million-barrel decrease. Additionally, stocks at the Cushing, Oklahoma delivery hub decreased by 1.3 million barrels, according to the U.S. Energy Information Administration (EIA).
Notably, there was no WTI settlement on Wednesday due to a U.S. public holiday, which resulted in subdued trading activity. The more actively traded August contract also gained 60 cents, reaching $81.31 per barrel.
Job Market Dynamics Influence Fed's Rate Decisions
Recent data showed that fewer Americans filed new claims for unemployment benefits last week. This decline in labor market activity mirrors the overall economic slowdown, as the Federal Reserve's tightened monetary policy aims to combat inflation. With inflationary pressures easing, the possibility of a rate cut later this year looms larger. A reduced interest rate environment would likely boost oil prices by making borrowing cheaper in the U.S., which could drive up oil demand and production.
Ricardo Evangelista, an analyst at ActivTrades, suggested that geopolitical risks, particularly in the Middle East, would continue to support oil prices. Israeli forces have intensified their actions in central Gaza and the southern city of Rafah. However, analysts like Priyanka Sachdeva from Phillip Nova noted that expectations of inventory builds are currently outweighing concerns over escalating geopolitical tensions.
Summer Demand and Global Production Cuts
The summer season is expected to see an uptick in oil demand, refinery activity, and weather-related risks, coinciding with extended production cuts by the OPEC+ producer group. This combination could further tighten oil balances and draw down inventories during the summer months, according to JPMorgan commodities analysts.
In related developments, the Bank of England maintained its main interest rate at a 16-year high of 5.25% as Britain approaches a national election on July 4. These macroeconomic trends continue to shape the outlook for global oil markets.
