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    • WTI stabilizes at as firm bets on Fed rate cuts cushion the downside
    Washington

    WTI stabilizes at $76 as firm bets on Fed rate cuts cushion the downside

    Madoc Meredith Posted on

    • The oil price finds a temporary buffer at $76.00 after a correction from a new three-week high of $78.80.
    • The prospect of a rate cut by the Fed has exacerbated the downward trend in oil prices.
    • Weak demand for economic stimulus in China has raised concerns about global demand.

    West Texas Intermediate (WTI) futures on the NYMEX are finding support at $75.70 in Thursday’s European session after correcting from a new three-week high of $78.78 in the last two trading sessions. Oil prices are expected to trade sideways as the downside move is supported by uncertainty over the conflicts in the Middle East and market participants’ over-expected expectations that the Federal Reserve (Fed) will start cutting interest rates from the September meeting. While growing uncertainty over global oil demand has sealed the upside move.

    Investors are concerned as Iran continues to prepare retaliation for the assassination of the Hamas leader in an Israeli airstrike in Tehran.

    Meanwhile, investors believe a Fed rate cut in September is a sure thing as price pressures remain on a path toward the Fed’s 2% target. However, traders are divided on the size of the rate cut. Lower Fed rates bode well for oil prices as higher liquidity outflows lead to improved economic activity and fuel consumption.

    Investor confidence that the Fed will cut interest rates starting in September was boosted by moderate growth in US consumer price index (CPI) data for July released on Wednesday. The CPI report showed that annual core inflation, which excludes volatile food and energy prices, eased to 3.2%, as expected. Headline inflation surprisingly slowed to 2.9%, the lowest in more than three years.

    In the Asian region, increasing concerns about China’s economic recovery have led to uncertainty about global demand. Data from the People’s Bank of China (PBoC) on Tuesday showed that the number of new bank loans fell to a 15-year low in July, suggesting weak demand in the domestic market. It is worth noting that China is the world’s largest oil importer and weak demand in the economy is weighing heavily on oil prices.

    Frequently asked questions about Brent crude oil

    Brent Crude Oil is a type of crude oil from the North Sea that is used as a reference for international oil prices. It is considered “light” and “sweet” due to its high density and low sulfur content, which makes it easier to refine into gasoline and other high-quality products. Brent Crude Oil serves as a reference price for about two-thirds of the world’s traded oil supplies. Its popularity is based on its availability and stability: the North Sea region has a well-developed infrastructure for oil production and oil transportation, which ensures a reliable and constant supply.

    As with all assets, supply and demand are the main drivers of the Brent crude oil price. For example, global growth can be a driver of increased demand and vice versa a driver of weak global growth. Political instability, wars and sanctions can disrupt supply and affect prices. The decisions of OPEC, a group of major oil producing countries, are another key price driver. The value of the US dollar affects the price of Brent crude oil as oil is predominantly traded in US dollars. So a weaker US dollar can make oil more affordable and vice versa.

    The weekly oil inventory reports from the American Petroleum Institute (API) and the Energy Information Agency (EIA) influence the price of Brent crude oil. Inventory changes reflect fluctuating supply and demand. If the data shows a decline in inventories, it can indicate increased demand, driving up the price of oil. Higher inventories can reflect increased supply, driving down the price. The API’s report is released every Tuesday and the EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA’s data is considered more reliable because it is a government agency.

    OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 oil-producing nations that meet biannually to jointly set production quotas for their member countries. Their decisions often affect the price of Brent crude oil. If OPEC decides to reduce quotas, it can tighten supply and drive up oil prices. If OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten additional non-OPEC members, the most prominent of which is Russia.

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    Madoc Meredith
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