Oil prices rose on Thursday, supported by optimism that possible U.S. rate cuts will boost economic activity and fuel consumption, but concerns about slowing global demand, influenced by China, capped gains.
Brent crude futures rose 19 cents, or 0.24%, to $79.95 a barrel by 0625 GMT, recouping some of the previous day’s losses. WTI crude futures rose 23 cents, or 0.3%, to $77.21 a barrel.
Both indexes fell more than 1% on Wednesday as U.S. crude inventories unexpectedly rose and concerns about a wider conflict in the Middle East eased.
U.S. consumer prices rose modestly in July, with annual inflation falling below 3% for the first time in nearly 3.5 years, boosting expectations that the Federal Reserve will cut interest rates next month.
Asian trading saw a correction on Wednesday as oil prices were heavily sold off, with investors betting that the Fed could begin cutting interest rates next month.
Investor concerns about Iran’s possible response to the killing of Palestinian leaders last month supported prices. Some Iranian officials said only a serious ceasefire in Gaza would prevent Iran from directly retaliating against Israel for the assassinations.
Geopolitical risk hangs over the oil market like the sword of Damocles. It remains unclear how and whether Iran will retaliate against Israel. That uncertainty has led to increased options trading activity as market participants seek to protect themselves from a significant rally.
Meanwhile, rising oil inventories have added to concerns about weaker demand. U.S. crude inventories rose by 1.4 million barrels in the week ended Aug. 9, compared with estimates of a 2.2 million barrel decline, the first increase since late June.
China’s factory output growth slowed in July, while refinery output fell for a fourth month, highlighting the country’s shaky economic recovery and also limiting the market’s upside.
The market’s focus will be on U.S. retail sales growth in July after mixed data from China, with a disappointing figure likely to trigger a short-term downward price move.
Overall, analysts have mixed views on the market’s price trajectory going forward.
Oil prices remain under pressure amid concerns about global demand, particularly in China, and WTI is forecast to head toward $72 in August.
However, prices are likely to rise further in the third quarter despite China’s slowdown due to the conflict in the Middle East, central bank rate cuts, and a weaker U.S. dollar. Brent prices are likely to rise to $90 per barrel.
