Oil snaps four-week winning streak on soft US demand outlook ahead of possible Fed rate cuts; Brent sticks to $85

Crude oil futures settled slightly lower in the previous session after investors weighed weaker US consumer sentiment against fresh hopes for a US Federal Reserve interest rate cut in September. Recent US inflation data led Wall Street experts to lift bets for rate cuts this year. Most analysts see two rate cuts before the end of the year if the inflation cooling trajectory stays on the current pace.

Brent crude futures settled 37 cents lower to $85.03 per barrel. US West Texas Intermediate crude futures fell 41 cents, or 0.5 per cent, to close at $82.21 a barrel. For the week, Brent futures fell more than 1.7 per cent after four weeks of gains. WTI futures posted 1.1 per cent weekly decline. Coming to domestic prices, crude oil futures settled 0.07 per cent higher at ₹6,898 per barrel on the multi commodity exchange (MCX).

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What's weighing on crude oil prices?

-A monthly survey by the University of Michigan showed that US consumer sentiment fell to an eight-month low in July, although inflation expectations improved for the next year and beyond. US inflation cooled for the third straight month in June with the core gauge at a three-year low level.

-The US Labor Department said the producer price index (PPI) rose 0.2 per cent in June, slightly more than expected, as the cost of services climbed. Still, investors expect the Fed could start cutting rates in September. Lower rates are expected to boost economic growth, which could boost fuel consumption.

-Oil prices have drawn some support from US gasoline demand, which official data showed on Wednesday was at 9.4 million barrels per day (bpd) in the week ended July 5, the highest since 2019 for the week. Jet fuel demand on a four-week average basis was at its strongest since January 2020.

-The strong fuel demand encouraged US refiners to ramp up activity and draw from crude oil stockpiles. US Gulf Coast refiners' net input of crude rose last week to more than 9.4 million bpd for the first time since January 2019, government data showed. Signs of weaker demand from China, the world's biggest oil importer, could counter the outlook from US and weigh on prices.

-Analysts said that the recent downside correction is evidently over, although the speed of further ascent might be hindered by falling Chinese crude oil imports, which plummeted 11 per cent in June from the previous year. US active oil rig count, an early indicator of future output, fell by one to 478 this week, the lowest since December 2021, reported energy services firm Baker Hughes.

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Where are prices headed?

Analysts said that crude oil exhibited significant volatility and extended its gains amid easing inflation in the US and increased possibilities of Fed rate cuts in the September policy meetings. The dollar index and US 10-year bond yields slipped to one-month lows, supporting oil prices. 

‘’The potential for upward demand in the coming months could further support oil prices in international markets. We expect crude oil prices to remain volatile. Crude oil has support at $81.10-$80.50 and resistance at $82.10-$82.70. In INR, crude oil has support at ₹6,840- ₹6,775, while resistance is at ₹6,970- ₹7,050,'' said Rahul Kalantri, VP Commodities, Mehta Equities Ltd.
 

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