Oil prices rise amid decline in US stockpile and federal rate cut

31 July 2019 (Last Updated July 31st, 2019 11:51)

Oil prices increased for the fifth day on Wednesday, aided by a bigger-than-expected drop in US inventories and on investor expectations of a cut in interest rates by the Federal Reserve, the first in over a decade.

Oil prices rise amid decline in US stockpile and federal rate cut
Oil prices gain amid decline in US stockpile along with Federal Reserve rate cut optimism. Credit: skeeze / Pixabay.

Oil prices increased for the fifth day on Wednesday, aided by a bigger-than-expected drop in US inventories and on investor expectations of a cut in interest rates by the Federal Reserve, the first in over a decade.

Brent crude gained $0.44, or 0.7%, at $65.16 a barrel, while US West Texas Intermediate crude increased by $0.41, or 0.7%, to $58.46 a barrel, Reuters reported.

Referring to the expected cut in interest rates, Sydney-based Probis Group chief investment officer Jonathan Barratt said over the phone: “The market is quite optimistic leading into what the Fed is going to do on interest rates and as a result of that we’ll see more demand.”

Central bankers in the US, who began a two-day meeting on Tuesday, were expected to cut borrowing costs for the first time since the financial crisis more than a decade ago.

In June, US consumer spending and prices rose moderately, indicating slower economic growth and benign inflation, fuelling expectations of federal rate cuts.

On Tuesday, US President Donald Trump reiterated his call for the Federal Reserve to make a substantial interest rate cut. However, central bankers would be unlikely to make that move, Barratt said.

In spite of the increase in oil prices, Brent is expected to decline in July due to continuing worries about demand, heading for a 2% decline, while WTI is down $0.01.

Still, the decline in US inventories in recent weeks suggested that demand concerns were overstated.

According to data from the American Petroleum Institute (API) on Tuesday, crude stockpiles declined again last week, along with gasoline and distillate inventories.

VM Markets said in a note: “There is a definitive seasonal trend emerging as inventory draws continue to beat analysts’ expectations by a mile suggesting analysts have grossly underestimated consumption and the breadth of seasonal demand this year.”

Crude inventories dipped by six million barrels in the week ending 26 July to 443 million barrels. In a Reuters poll, analysts expected a decrease of 2.6 million barrels, the API data showed.

If the US Government data confirms the fall, the decline will put crude stocks down for a seventh week in a row, the longest stretch after falling for a record ten consecutive weeks ending in January 2018.

However, total crude stockpiles would still be around 3% higher than the five-year average, the report said.