Oil prices rose in Asian trading on Friday, set for a third weekly jump, supported by rising expectations that the U.S. central bank will soon start cutting interest rates and tightening complex refinery margins.
Brent crude futures for August delivery due on Friday were up 48 cents, or 0.56%, at $86.87 a barrel by 0620 GMT. The Brent contract for September delivery rose 0.53% to $85.71 a barrel.
WTI futures for August delivery rose 52 cents, or 0.64%, to $82.26 a barrel.
Brent and WTI futures have gained nearly 2% this week and are on track for a little more than 6% gain on the month.
Crude oil rose despite weak near-term fundamentals, given the unexpected increases in U.S. crude inventories despite expectations of a demand slump. It rose on the risk-taking tendencies of the broader market, triggered by data suggesting further weakness in the U.S. labor market.
Rising expectations of an impending Fed easing cycle have led to a risk-off rally in equity markets, with traders now pricing in a 64% chance of a first Fed cut in September, up from 50% a month ago. The easing of interest rates is a boon for oil as it could boost demand.
A recovery in physical refinery margins has also buoyed markets. Refinery margins are expected to remain at current levels as we head into Q3. Gasoline is also expected to continue rising through August.
Gains were capped by volatility in the U.S. dollar, which is at a two-month high, and political uncertainty in France, which has a domino effect on oil demand.
The downside risk factor at play is related to USD volatility, bearing in mind the US core PCE inflation that is due later today.
