Oil prices rise as rate cut optimism offsets inventory build, demand fears

Investing.com-- Oil prices rose in Asian trade on Thursday, extending a rebound from four-month lows as optimism over lower interest rates in the coming months offset negative signals from an unexpected build in U.S. inventories.

Traders also second-guessed plans by the Organization of Petroleum Exporting Countries and allies (OPEC+) to begin scaling back production cuts this year, especially in the face of weaker prices.

Brent oil futures expiring in August rose 0.5% to $78.80 a barrel, while West Texas Intermediate crude futures rose 0.6% to $74.26 a barrel by 20:57 ET (00:57 GMT). Both contracts surged nearly 2% on Wednesday after sinking to four-month lows. 

Rate cut hopes, bargain hunting support crude 

Oil prices rose tracking a broader increase in risk-driven markets, as weak U.S. labor data fueled bets that the Federal Reserve will begin cutting rates by as soon as September. 

A rate cut by the Bank of Canada on Wednesday, and an upcoming rate cut by the European Central Bank on Thursday also pushed up hopes over looser monetary policy, which traders hoped will help buoy oil demand later this year.

But the rate cuts come amid dismal economic conditions across the globe, which could still limit oil demand. 

Still, crude prices also benefited from some bargain buying on Thursday, after fears of sluggish demand and higher supplies battered markets this week.

US inventories unexpectedly grow

Government inventory data showed on Wednesday that U.S. oil inventories grew by 1.2 million barrels in the week to May 31, compared to expectations for a draw of 2.1 mb.

Distillates grew by a bigger-than-expected 3.2 mb, while gasoline inventories grew slightly less than expected at 2.1 mb.

The overall builds in stockpiles raised some concerns over cooling demand in the world’s biggest fuel consumer, even as the travel-heavy summer season began.

OPEC+ could walk back phasing out supply cuts- Roth

Sustained weakness in oil prices could see the OPEC+ walk back on its plans to begin phasing out production cuts this year, Roth MKM analysts said in a note.

The cartel said at its latest meeting that it intends to begin scaling back 2.2 million barrels per day of production cuts from October 2024 to September 2025. This triggered a sharp decline in oil prices.

But weakness in the oil prices may see the OPEC+ postpone, or even put off any plans to increase production.