By Adedapo Adesanya
Oil closed higher on Wednesday as ongoing tensions in the Middle East lent support to prices but possible delays to interest rate cuts following the Federal Reserve’s statement concluding its two-day meeting capped gains.
Brent crude futures appreciated by 68 cents or 0.83 per cent to trade at $82.60 per barrel and the US West Texas Intermediate (WTI) crude futures grew by 60 cents or 0.77 per cent to $78.50 per barrel.
Palestinian militant group, Hamas, has proposed numerous changes to a US-backed proposal for a ceasefire with Israel in Gaza, and according to the US Secretary of State, Mr Antony Blinken, some were unworkable but added that mediators were determined to close the gaps.
The US Federal Reserve held interest rates steady on Wednesday and pushed out the start of rate cuts to perhaps as late as December, with officials projecting only one reduction for the year amid rising estimates for what it will take to keep inflation in the world’s largest oil producer in check.
This means there won’t be rate cuts before the November 5 US presidential election as officials repositioned from expecting three quarter-percentage-point reductions in March to just one.
The European Central Bank (ECB) started cutting interest rates last week, and Canada has followed suit. The ECB’s recent interest rate cut, its first since 2019, marked a significant effort to tackle inflation.
Following this, Denmark’s central bank also lowered its benchmark interest rate by 25 basis points to 3.35 per cent. The ECB cited progress in reducing inflation, which fell to 2.6 per cent in the eurozone from 10 per cent in late 2022.
JP Morgan economists had predicted that the Federal Reserve would cut rates once or twice this year, and three times next year.
The US Energy Information Administration reported an estimated inventory increase of 3.7 million barrels to 459.7 million barrels for the week to June 7.
The change compared with a weekly build of 1.2 million barrels for the previous week was also accompanied by builds in fuel inventories, pressuring benchmarks.
Last week, the EIA estimated more builds in gasoline and middle distillate inventories.
In gasoline (petrol), the authority reported an inventory build of 2.6 million barrels for the seven days to June 7, with production averaging 10.1 million barrels daily. This compared with an inventory build of 2.1 million barrels for the prior week when production stood at an average of 9.5 million barrels daily.
However, in the longer term, the EIA, the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries this week updated their views on the global oil demand-supply balance for 2024, predicting declines in global oil inventories.