Oil stays near two-month peak amid strong demand outlook, possible rate cut

Oil Prices Steady Following Two-Month Highs Amid Summer Travel Season

Oil prices remained mostly unchanged on Tuesday, closely aligning with the two-month highs achieved in the previous session. This steadiness is attributed to rising fuel demand anticipated from the summer travel season and potential U.S. interest rate cuts that could stimulate economic growth.

As of 0142 GMT, Brent crude futures edged up by 20 cents to $86.80 per barrel, following a 1.9% increase from the prior session, reaching the highest close since April 30. Similarly, U.S. West Texas Intermediate (WTI) crude rose by 13 cents to $83.51 per barrel after a 2.3% gain, marking its peak since April 26.

Boost in U.S. Travel and Gasoline Demand

The U.S., the world's largest oil consumer, is expected to see a surge in gasoline demand as summer travel intensifies, especially with the upcoming Independence Day holiday. The American Automobile Association (AAA) predicts that travel during this holiday period will be 5.2% higher compared to 2023, with car travel alone expected to be 4.8% higher than the previous year.

"This could help gasoline demand recover after a subdued first half of 2024," noted analysts from ANZ in a recent statement.

Supply Disruptions and Hurricanes

On the supply front, the market is preparing for potential disruptions from Hurricane Beryl, which could affect U.S. oil refining and offshore production. Current forecasts suggest that the storm may move into Mexico's Bay of Campeche, potentially impacting oil production in that region.

Hurricane Beryl, which intensified from a category 1 to a category 4 storm within 10 hours, struck the Caribbean on Monday, prompting the U.S. National Hurricane Center to issue warnings about an "extremely dangerous situation."

Economic Indicators and Interest Rates

Hopes are rising that the Federal Reserve might cut interest rates, possibly by September, as inflation shows signs of easing. A report released on Monday revealed that U.S. manufacturing activity had contracted for the third consecutive month, with the prices manufacturers paid for certain inputs falling to a six-month low. Additionally, a Commerce Department report from Friday indicated that U.S. inflation data remained unchanged in May, potentially bolstering the argument for reducing interest rates to boost economic activity and oil demand.

Demand Growth Concerns

Despite these positive indicators, oil price gains have been tempered by signs of less-than-expected demand growth. Data suggests that crude imports to Asia, the world's largest oil-consuming region, in the first half of 2024 were lower than those seen last year. This decrease is primarily attributed to reduced imports by China, the world's largest oil importer and the second-largest consumer.