Oil prices continued their upward trajectory on Friday, marking the third consecutive week of gains. This rally was driven by growing anticipation that the U.S. Federal Reserve might soon begin cutting interest rates, coupled with concerns over potential supply disruptions from geopolitical conflicts in Russia and the Middle East.
Brent crude futures for August settlement, which are set to expire on Friday, increased by 64 cents, or 0.74%, reaching $87.03 a barrel by 11:05 GMT. The more actively traded September Brent contract rose 0.67% to $85.83 a barrel. U.S. West Texas Intermediate (WTI) crude futures for August delivery also saw a rise of 68 cents, or 0.83%, bringing the price to $82.42 a barrel. Both benchmarks have posted nearly 2% gains this week, with month-on-month increases slightly exceeding 6%.
Market participants are closely watching the U.S. personal consumption inflation data, which is the Federal Reserve's preferred measure of inflation, scheduled for release at 12:30 GMT. Yeap Jun Rong, a market strategist with IG, noted, "With the rates market looking for two rate cuts from the Fed by the end of this year, the price data will serve as validation for whether expectations are being overly dovish."
The prospect of imminent rate cuts by the Federal Reserve has ignited a risk rally across stock markets. Traders are currently pricing in a 64% chance of a first Fed cut in September, up from 50% a month ago, according to the CME FedWatch tool. Charalampos Pissouros, senior investment analyst at brokerage XM, commented, "Increasing bets about a September rate cut, and two by December, are likely to weigh on Treasury yields and the U.S. dollar, thereby allowing oil prices to continue marching north."
Lower interest rates could boost oil demand as borrowing costs decrease, potentially stimulating economic activity and consumer spending. Additionally, a recovery in physical refining margins has supported oil markets, with the Singapore complex refining margins averaging $3.60 a barrel in June, a $1 increase from May.
Despite the overall positive sentiment, political uncertainty in France has slightly tempered gains, as it could potentially affect oil demand in the region.
On the geopolitical front, oil prices have been bolstered by fears of supply disruptions stemming from tensions in Russia and the Middle East. Brent and WTI contracts have gained more than 6% each in June, as concerns about a wider conflict in the Middle East and attacks by Ukraine on Russian fuel refineries have heightened market anxieties over potential crude supply interruptions.
Furthermore, adverse weather conditions, including heavy rains in Ecuador and a looming hurricane in the Gulf Coast, have raised the prospect of additional supply disruptions. Compounding these concerns, the U.S. Senate budget committee has initiated a probe into 14 domestic producers, including Exxon Mobil Corp, Chevron Corp, and ConocoPhillips, over potential coordination with the Organization of the Petroleum Exporting Countries (OPEC) to manipulate oil prices.
OPEC has repeatedly cut production over the past year in an effort to stabilize oil prices, although these measures have provided only limited support to the crude markets. However, prices received a boost when the cartel announced after a June meeting that it would maintain current production levels to ensure price support through 2024.
