By Adedapo Adesanya
Oil settled higher on Wednesday, with benchmark Brent futures reaching $80 a barrel for the first time since May after inflation data in the US spurred hopes the Federal Reserve may have fewer interest rate hikes in store for the world’s biggest economy.
The price of Brent moved up by 71 cents or 0.9 per cent to $80.11 a barrel, and the US West Texas Intermediate (WTI) went up by 92 cents or 1.2 per cent to $75.75 a barrel.
Inflation in the world’s largest economy fell to its lowest annual rate in more than two years during June, the product both of some deceleration in costs and easy comparisons against a time when price increases were running at a more than 40-year high.
The consumer price index, which measures inflation, increased 3 per cent from a year ago, which is the lowest level since March 2021. On a monthly basis, the index, which measures a broad swath of prices for goods and services, rose 0.2 per cent.
However, central bank policymakers tend to look more at core inflation, which is still running well above the Federal Reserve’s 2 per cent annual target.
Markets expect one more interest rate rise, but oil traders hope that may be it. Higher rates can slow economic growth and reduce oil demand.
This changed the fortune of the market after the US Energy Information Administration (EIA) reported an inventory increase of 5.9 million barrels for the week to July 7 compared with a modest inventory draw of 1.5 million barrels for the previous week, which failed to move prices in any meaningful way.
On the other hand, the American Petroleum Institute (API) reported a crude oil inventory build of over 3 million barrels last week. It followed a weekly draw of over 4 million barrels, but prices still moved higher thanks to the other bullish factors.
Support also came after forecasts from the Organisation of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) saying oil demand and production controls were tightening global supply.
The market is also looking at positives after top producer Saudi Arabia pledged last week to extend a production cut of 1 million barrels per day in August, while Russia will cut exports by 500,000 barrels per day.
The IEA expects the oil market to stay tight in the second half of 2023, citing strong demand from China and developing countries combined with supply cuts from leading producers.
New forecasts from the IEA are expected this week.
Additionally, signs began to emerge that Russian oil export volumes are on the decline, too, contributing to oil’s upward trajectory.
