Oil Prices Hold managed to rise on Wednesday during American trade, marking the first increase in five sessions. This rebound helps prices stay above six-week lows, primarily driven by a significant drop in US crude inventories.
Current Oil Prices and Market Movements
Oil prices have been buoyed by a combination of factors, including a recent dip in the US dollar and declining US crude stocks, following weak industrial data that has increased the likelihood of multiple Federal Reserve rate cuts this year.
Oil Price Details
- US Crude: Rose 0.8% to $77.99 per barrel, with a session-low of $77.01.
- Brent Crude: Rose 0.6% to $81.90 per barrel, with a session-low of $80.97.
On Tuesday, US crude experienced a 1% loss, dropping to six-week lows at $76.43. Similarly, Brent crude shed 0.9%, marking its fourth consecutive loss and hitting lows last seen on June 10 at $80.55.
Factors Influencing Oil Prices
- Decline in US crude inventories: Official data showed a larger-than-expected drop.
- Weakening US dollar: Made oil cheaper for holders of other currencies.
- Concerns about Chinese demand: Weighing on market sentiment.
US Crude Stocks Data
The Energy Information Administration (EIA) reported a 3.7 million barrel decline in commercial crude stocks for the week ending July 10, surpassing the expected drop of 2.6 million barrels. This marks the fourth consecutive weekly decline, reducing US crude inventories to 436.6 million barrels, the lowest level since early February. This trend signals robust demand in the US.
Inventory Data Highlights
- Weekly Decline: 3.7 million barrels
- Current Inventory Level: 436.6 million barrels
- Comparison to Estimates: Exceeded expected drop of 2.6 million barrels
The Dollar’s Impact on Oil Prices
The US dollar index fell by over 0.3% on Wednesday against a basket of major rivals, influenced by weak US industrial data. A weaker dollar typically supports oil prices, as it makes dollar-denominated commodities cheaper for investors holding other currencies.
Dollar Index Movement
- Recent Decline: 0.3%
- Effect on Commodities: Lower dollar value supports oil prices
Potential Federal Reserve Rate Cuts
Weak US industrial data has increased the market’s expectations for Federal Reserve rate cuts in September and November. Lower interest rates could lead to a weaker dollar, further supporting oil prices.
Rate Cut Probabilities
- September Rate Cut: Highly anticipated
- November Rate Cut: Also expected
Conclusion
In summary, oil prices have managed to hold their ground after a significant drawdown in US crude inventories and a weakening US dollar. While concerns about demand from China continue to weigh on the market, the recent data and dollar movements have provided some support. As the market continues to monitor US economic data and Federal Reserve actions, oil prices may experience further volatility.
FAQs
Concerns about weakening demand from China, the world’s second-largest fuel consumer, have weighed on market sentiment and contributed to recent price declines.
Why did oil prices rise on Wednesday?
Oil prices rose due to a significant drawdown in US crude inventories and a weaker US dollar.
What was the recent trend in US crude stocks?
US crude stocks fell by 3.7 million barrels in the week ending July 10, marking the fourth consecutive weekly decline.
How does the US dollar affect oil prices?
A weaker US dollar makes dollar-denominated commodities like oil cheaper for holders of other currencies, typically supporting higher prices.
What are the expectations for Federal Reserve rate cuts?
Market expectations have increased for rate cuts in September and November, influenced by weak US industrial data.
How has concern about Chinese demand impacted oil prices?