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Fed Rate Cuts Anticipated
According to a recent Reuters poll, nearly two-thirds of economists are predicting that the Fed will cut interest rates in September. This expectation has caused a stir in the market, overshadowing bearish supply news. Most forecasters are anticipating two rate cuts this year, with the first one expected in September, potentially bringing rates down to a range of 5.00%-5.25%. The likelihood of a July rate cut has decreased, with only a handful of economists expecting a reduction at that time.
OPEC+ Supply Decisions and U.S. Inventories
Recent developments in the OPEC+ agreement have stirred up the oil market. While most of the oil output cuts have been extended into 2025, there is room for voluntary cuts from eight members to be gradually unwound, starting in October. This decision has had a negative impact on prices, leading to a 3% decline. In addition, U.S. crude stocks unexpectedly rose by 1.2 million barrels, contrary to analysts’ expectations of a drawdown, adding to the bearish sentiment.
Market Reactions and Refinery Activity
Despite the increase in inventories, crude oil futures saw a slight uptick after the data release. Brent crude and West Texas Intermediate (WTI) both rose, with refinery crude runs hitting their highest levels since December 2019. Refinery activity remains strong, with utilization rates at 95.4% of total capacity.
Economic Indicators and Oil Demand
Recent economic indicators have influenced market sentiment, with the U.S. economy growing at a slower pace than previously estimated. This has prompted a shift in fed funds futures bets towards the possibility of two rate cuts. However, key inflation measures remain stable, and the U.S. services sector returned to growth in May, potentially dampening the case for rate cuts. Inflation is not expected to meet the Fed’s 2% target until at least 2026.
Market Forecast
Looking ahead, the oil market is expected to experience volatility as traders navigate the potential Fed rate cuts, increased OPEC+ supply, and rising U.S. inventories. While the anticipation of rate cuts could provide support for prices, concerns about supply have kept the outlook bearish for the immediate future. However, bullish shifts could occur depending on the Fed’s actions and economic indicators.
Technical Analysis
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