Oil sits over 3% higher on positive US economic data, Fed rate cut hopes; WTI up 4%, Brent nears $80/bbl

Crude oil prices settled higher in the previous session and notched over 3.5 per cent in weekly gains as positive US economic data and signals from US Federal Reserve policymakers that they could cut interest rates as early as September eased demand concerns, while fears of a widening Middle East conflict continue to raise supply risks.

Brent crude futures settled 50 cents up, or 0.6 per cent, at $79.66 a barrel, while US West Texas Intermediate crude futures rose 65 cents, or 0.9 per cent, to $76.84. Brent gained more than 3.5 per cent in the week, while WTI rose more than four per cent. Coming to domestic prices, crude oil futures settled 0.3 per cent higher at ₹6,441 per barrel on the multi commodity exchange (MCX).

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What's driving crude oil prices?

-Analysts said that crude is in a recovery mode as geopolitical tensions still seem to be a positive factor, and on-again off-again recession fears have calmed a bit, at least for now. Oil prices crashed after recession fears arose in the US.

-A trio of Federal Reserve policymakers indicated on Thursday that they were more confident that inflation is cooling enough to cut rates. A bigger-than-expected fall in US jobless claims data also helped to underpin the recovery.

-The number of Americans filing new applications for unemployment benefits fell more than expected last week, suggesting that fears the labor market is unraveling were overblown and that the gradual softening in the labor market remains intact.

-Also offering support was China's consumer price index, which rose last month at a slightly faster than expected rate. A positive momentum was reinforced by Chinese inflation numbers that exceeded expectations. In this context, analysts said that Brent crude may test $80 per barrel mark.

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-Analysts said that the price per barrel has benefited from rising geopolitical tensions in the Middle East, which have fuelled fears of a potential conflict that could disrupt the region's output and reduce the global supply of crude.

-Israeli forces stepped up airstrikes across the Gaza Strip on Thursday, killing at least 40 people, Palestinian medics said, in further battles with Hamas-led militants. The killing last week of senior members of militant groups Hamas and Hezbollah had raised the possibility of retaliatory strikes by Iran against Israel, stoking concerns over oil supply from the world's largest producing region.

-Iran-aligned Houthi militants have also continued attacks on international shipping near Yemen in solidarity with Palestinians in the war between Israel and Hamas. Leaders of the United States, Egypt and Qatar called on Israel and Hamas to meet for negotiations on August 15 in order to finalize a Gaza ceasefire and hostage release deal.

-The Russia-Ukraine conflict also continued as Moscow moved extra tanks, artillery and rocket systems to its southern Kursk region on Friday as it battled for the fourth straight day to end a shock incursion by Ukrainian forces.

-Meanwhile, the dollar index, which measures the currency against six others, was down 0.136 per cent at 103.14 following three days of gains. A weaker greenback helps demand as oil becomes cheaper for foreign buyers.

Lending further support to prices, Libya's National Oil Corp declared force majeure at its Sharara oilfield from Wednesday, adding that it had gradually reduced the field's output because of protests. However, US oil rigs, an indicator of future production, rose by three to 485 this week.
 

Also Read: Federal Reserve’s Bowman sees upside inflation risk, signals no rate cut
 

Where are prices headed?

‘’Crude oil prices exhibited significant volatility and continued to rise. Prices were buoyed by a sixth consecutive weekly decline in US crude oil stocks. However, Chinese oil imports fell once again in July, reaching their lowest levels since September 2022 due to sluggish manufacturing and industrial activity, which has limited further gains in crude oil prices,'' said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.

‘’The strengthening of the US dollar index and bond yields could also cap potential price increases. We expect crude oil prices to remain volatile in today’s session. Crude oil is likely to find support at $74.50-$73.80, with resistance at $75.80-$76.40. In INR terms, crude oil has support at ₹6,365- ₹6,290 and resistance at ₹6,490- ₹6,550,'' added Kalantri.