As modest US inflation data allays concerns about a Fed rate increase, oil prices stabilize

On July 12, oil prices significantly increased, with the benchmark Brent futures crossing the USD 80 per barrel mark for the first time since May. The release of U.S. inflation data is responsible for this price surge and has raised the expectation of fewer interest rate hikes for the economy. Moreover, it also showed that consumer prices for June increased modestly, registering a slight increase on a yearly basis in over two years. Oil traders are quite hopeful that this will be the last interest rate hike, as higher interest rates can hinder economic growth and reduce oil demand.

Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, suggests that this situation is transitory, but the recent growths exhilarated traders. The Brent futures rose by 71 cents, or 0.9 percent, to USD 80.11 a barrel, while U.S. West Texas Intermediate (WTI) crude rose by 92 cents, or 1.2 percent, to USD 75.75 a barrel. Furthermore, the oil market is tightening, and according to reports from the U.S. Energy Information Administration and the International Energy Agency, it is expected to become tighter in 2024. Additionally, the increase in demand from China and other developing countries, as well as the cuts in supply from major producers, is expected to make the market tighter in the latter half of 2023, as per IEA.

Saudi Arabia, a top producer of oil, is further focussing on extending their production cut of 1 million barrels per day (bpd) in August of 2023. In addition, Russia plans to reduce exports by 500,000 bpd. Despite these efforts to limit oil production, prices were negatively impacted by a report released by the U.S. EIA. The report revealed a significant increase of almost 6 million barrels in U.S. crude stock in the previous week, which was much larger than anticipated.

According to Procurement Resource, on July 12, the price of oil rose significantly, crossing the benchmark of USD 80 for the first time since May. The reports from U.S. inflation data have played a vital role in stabilizing oil prices.