Oil Surges as Traders Await Fed Cut, Industry Sees Storage Drop
Oil extended gains on speculation that demand will get a bump from a potential U.S. Federal Reserve rate cut.
(Bloomberg) -- Oil surged as the Federal Reserve moved toward a rate-cut to boost the economy while tensions with Iran threatened to choke Middle East supplies.
Futures in New York closed 2.1% higher, rising for a fourth straight session. The Fed opened a two-day meeting on Tuesday where it’s expected to lower borrowing costs for the first time in more than a decade. Iran, meanwhile, appealed to France for help in the face of U.S. sanctions that have caused the OPEC member’s crude exports to plunge.
Prices got further support later Tuesday after the American Petroleum Institute was said to find U.S. stockpiles shrank for a seventh straight week, bolstering the picture of a tightly supplied oil market.
“The energy complex is on the front foot as market players position themselves for a looming Fed rate cut,” analysts at London-based broker PVM Oil Associates Ltd. said in a note to clients. “The guardians of U.S. monetary policy are widely expected to cut interest rates tomorrow which should pressure the dollar and in turn support oil prices.”
West Texas Intermediate for September delivery settled $1.18 higher at $58.05 a barrel on the New York Mercantile Exchange. Brent crude for September closed up $1.01 at $64.72 on the ICE Futures Europe exchange.
Both benchmarks extended the rally after the close. WTI rose to $58.38 a barrel at 4:50 p.m. Brent advanced to $64.98.
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A steady decline in American oil inventories has alleviated some concerns about demand. The industry-backed API found domestic stockpiles slid by 6.02 million barrels, more than twice the median forecast of analysts surveyed by Bloomberg. Official government statistics are due on Wednesday.
Prices had lost some momentum earlier in the day, after U.S. President Donald Trump criticized China in a tweet, even as the two nations resumed trade talks in Shanghai. Investors eventually looked past the complaints, said Bob Yawger, futures director at Mizuho Securities USA LLC.
“The crude oil market loves trade headlines,” he said. “Even if they were negative earlier in the day, at the end of the day the countries are trying to make a deal happen. They’re not there to fail, and that supports oil.”
--With assistance from Heesu Lee and Kiran Dhillon.
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