Crude Oil Prices Steady Amid Anticipation of U.S. Rate Cuts and Geopolitical Risks

Price

• The sharp sell-off in crude oil paused on Thursday after expectations of a rate cut by the Federal Reserve offset weak economic data from the world’s two largest economies, the United States and China.
• Brent crude futures were up by 3 cents to $76.08 a barrel. U.S. West Texas Intermediate crude futures fell by 5 cents, trading at $71.88 at 0036 GMT. Both contracts lost over $1, or more than 1%, in the previous session. MCX crude oil prices opened at ₹6,245, down by 2.95%.

Demand and Suppy

• The overnight downturn in oil prices paused in early Thursday trade as markets focused on the prospects of near-term U.S. rate cuts.
• The Federal Reserve appeared to be on track for an interest rate cut in September after a “vast majority” of officials indicated that such an action was likely, according to the minutes of the U.S. central bank’s July 30-31 meeting.
• “The minutes from the Fed’s July 31 meeting show that cuts are just around the corner,” ANZ Research noted. “The prospect of easing monetary policy should support sentiment across the energy and metal markets.”
• Lower interest rates reduce the cost of borrowing, which can boost economic activity and demand for oil.
• Geopolitical risks also remained a focal point for investors.
• In the Middle East, U.S. President Joe Biden, in a phone call with Israeli Prime Minister Benjamin Netanyahu, stressed the urgent need to conclude a Gaza ceasefire-for-hostages deal and pointed to upcoming Cairo talks as crucial.

News

• Nigeria is currently grappling with issues such as political instability and tribal tensions, exacerbated by poor governance.
• In response, the Nigerian National Petroleum Company Limited (NNPC Ltd) has vowed to address these challenges while advancing its exploration projects in the northern part of Nigeria.
• NNPC Ltd, in compliance with the Petroleum Industry Act (PIA), is committed to continuing oil drilling projects in the North, following decades of exploration in the South.
• With crude oil reserves exceeding 37 billion barrels, and as the 6th largest producer globally, the discovery of hydrocarbon deposits in the Kolmani River II Well in the Upper Benue Trough, Gongola Basin, in northeastern Nigeria, is expected to enhance the country's prosperity and strengthen its standing within OPEC.

Expert's Opinion

• Crude oil market sentiment remains under pressure due to China's economic slowdown and the rapid adoption of electric vehicles (EVs) and hybrid cars, which are reducing fuel demand.
• Although OPEC+ voted to start unwinding some voluntary cuts in Q4 at its June meeting, expectations are increasingly leaning towards a deferral. The market is shifting from pricing in a stronger economy to concerns over a potential hard landing, which is why oil prices are hesitant to rise.