Oil prices significantly increased on Thursday, breaking beyond the $80 barrier for the first time since April.
This surge came as the sharp cooling of US inflation instilled hopes among investors that the US Federal Reserve would back off from pursuing further aggressive interest rate increases.
Oil Prices Surge as US Inflation Cools, Easing Investor Concerns
Brent, the leading benchmark for global oil prices, saw a 0.29 percent increase, reaching $80.34 per barrel at 10:17 AM UAE time.
West Texas Intermediate (WTI), the gauge that tracks US crude, also rose by 0.25 percent to $75.94 per barrel.
During Wednesday’s trading, Brent settled 0.89 percent higher at $80.11 per barrel, Factors while WTI recorded a 1.23 percent increase at $75.75.
Market analysts, such as Craig Erlam from Oanda, pointed out that any factors enabling a soft landing for the US economy would have a positive impact on oil prices.
Erlam added that Brent had already been trending higher and was currently at its highest level since April, having already broken out of the range it had been trading within for the past couple of months.
The US consumer price index data, released on Wednesday by the Labour Department, revealed a 3 percent year-on-year rise in June, marking the smallest increase since March 2021 and a decline from
May’s 4 percent. Core inflation, which excludes food and energy, experienced a 0.2 percent increase last month, the lowest one-month gain since August 2021.
Read more: Unexpected Income’s Impact: Stimulus Checks, Student Loans, And The Economy
Enabling a Soft Landing for the US Economy Provides Optimism for Oil Prices
Earlier this month, the Federal Reserve decided to pause its interest rate hikes, breaking its continuous cycle of monetary tightening that began in March 2022.
The pause comes as the Fed evaluates the impact on the economy. While the Fed indicated that it would resume raising rates later this year if necessary, its next meeting is scheduled for July 25 and 26.
Emirates NBD analysts stated in a research note that the Fed is still likely to proceed with a resumption of rate hikes at its upcoming meeting.
They believe that the recent economic slowdown was primarily driven by more favorable energy prices compared to the spike witnessed last year following the Russian invasion of Ukraine.
Higher interest rates have the potential to dampen economic growth, resulting in decreased crude demand.
Therefore, the easing of concerns regarding rate hikes has contributed to the optimism in the oil market and the subsequent surge in oil prices.
Overall, the recent increase in oil prices, combined with hopes for a softer economic landing and a potential easing of interest rate increases, has brought relief to investors and stakeholders in the oil industry.
However, market dynamics and geopolitical factors will continue to play a crucial role in shaping the future trajectory of oil prices.
Read more: Inflation Eases Overall In May, But Core Prices Hold Strong
