By Adedapo Adesanya
Oil prices increased by about 2 per cent on Thursday after the European Central Bank (ECB) opted to cut interest rates, with the market hoping the US Federal Reserve would follow suit.
The price of Brent crude futures went up by $1.46 or 1.86 per cent to finish at $79.87 a barrel and the US West Texas Intermediate (WTI) crude futures gained $1.48 or 2 per cent to trade at $75.55 a barrel.
Yesterday, the ECB went ahead with its first interest rate cut since 2019, citing progress in tackling inflation but cautioning the fight was far from over.
With Thursday’s move, the ECB lowered its bank deposit rate to 3.75 per cent from a record 4.0 per cent. It joins the central banks of Canada, Sweden and Switzerland in undoing some of the steepest streaks of interest rate hikes in recent history.
Analysts now see the European rate cuts as a likely precursor to US Federal Reserve rate cuts.
In the US, economists predict the Federal Reserve will cut rates in September as indications show that the world’s largest oil producer’s 2 per cent inflation target is still far behind.
Meanwhile, the number of Americans filing new claims for unemployment benefits rose last week, and first-quarter unit labour costs rose by less than previously thought and despite the cooling number, it is unlikely to push the Fed to start rate cuts.
The ministers in the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) reassured investors the latest oil output agreement could change depending on the market.
On Thursday, Saudi Energy Minister Prince Abdulaziz bin Salman stated that OPEC+ has the option to halt or reverse production increases if it determines that the market is not robust enough.
On his part, Mr Alexander Novak, the Deputy Prime Minister of Russia, stated that the group may modify the agreement if necessary. He also attributed the post-meeting price decline to “speculative factors” and a misinterpretation of the agreement.
The allies agreed on Sunday to extend most production cuts into 2025 but left room for voluntary cuts from eight members to be unwound gradually.
Some of the market stakeholders note that the OPEC+ decision to phase out some output cuts, combined with strong fuel supplies, has driven oil prices lower.