Crude oil market climbed by 1% on Wednesday as hopes of an interest rate cut by the US Federal Reserve in September outweighed demand concern after data showed builds in US crude and fuel stocks.
Brent crude futures settled 89 cents or 1.2% higher to $78.41 per barrel and the US West Texas Intermediate ,WTI, crude futures increased by 82 cents or 1.1% to $74.07 a barrel.
The US Energy Information Administration (EIA) reported an estimated inventory build of 1.2 million barrels for the week to May 31 versus the decline of 4.1 million barrels for the previous week, which failed to move prices higher because it came in the company of fuel inventory builds in both gasoline and middle distillates.
The EIA estimate follows the American Petroleum Institute’s reporting of a crude oil inventory build and fuel builds. The inventory change was unexpected and further pressured oil prices down since the start of the week.
In fuels, the EIA reported inventory builds of 2.1 million barrels for the last week of May, adding to demand concerns as the week reflected fuel usage around the Memorial Day holiday, which signifies the start of the US summer driving season.
Meanwhile, Reuters reported that the US Federal Reserve will cut its key interest rate in September and once more this year.
Lower interest rates decrease the cost of borrowing, which can incentivize economic activity and boost oil demand.Pressure also came after the most recent meeting of the Organisation of the Petroleum Exporting Countries and its allies ,OPEC+, over the weekend, there was news that some of the production cuts that the group agreed to last year might be undone later this year. Traders saw the chance as a surplus promise, as long as the market conditions were right.
Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, has said OPEC+ would pause the unwinding of the cuts or reverse them if demand wasn’t strong enough to absorb the barrels.
Prices were weighed down by the first drop in five months in Saudi Arabia’s official selling price for its flagship Arab Light crude oil to Asia.
The price cut for Asia highlights the strain on OPEC producers as non-OPEC supply grows and demand concerns.
