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Oil Prices Rise Amid Expectations of September US Interest Rate Cut

Oil prices continued to climb on Thursday, supported by growing expectations of an interest rate cut from the U.S. Federal Reserve in September. However, gains were tempered by concerns over increased supply from OPEC+ and higher U.S. inventories.

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Brent crude futures edged up by 57 cents or 0.7%, reaching $78.98 a barrel by 0815 GMT, while U.S. West Texas Intermediate crude futures rose by 62 cents or 0.8%, reaching $74.69.

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Wednesday saw oil benchmarks rebound by more than 1%, recuperating from a nearly $8 decline per barrel over the five previous sessions.

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Recent surveys indicate that nearly two-thirds of economists anticipate the Fed will implement interest rate cuts in September, potentially offsetting recent bearish supply news. Lower interest rates can stimulate economic activity and drive up oil demand by reducing borrowing costs.

However, the case for rate cuts might be challenged by the return of growth in the U.S. services sector, which accounts for a significant portion of the country’s economic output, following a contraction in April.

Despite the uptick in oil prices, they were still on track for weekly declines of about 3%, influenced by OPEC+’s recent decision. While the group agreed to extend most of their oil output cuts into 2025, they allowed for gradual unwinding of voluntary cuts from eight members starting in October.

Barclays analyst Amarpreet Singh noted that oil markets may have overreacted to the mildly negative outcome of the OPEC+ meeting. Demand indicators have softened somewhat, but they are not plummeting.

OPEC Secretary General Haitham Al Ghais expressed optimism about sustained strong demand, while Russia anticipates a gradual increase in global oil demand without a near-future peak.

Bearish sentiment lingers due to expectations of weaker demand amid inventory builds. Emril Jamil, senior analyst for crude at LSEG Oil Research, highlighted this sentiment.

In separate developments, Saudi Arabia reduced its official selling prices (OSP) for July crude, attributing the decision to falling Middle East crude benchmarks and weaker profit margins for Asian refiners.

Moreover, U.S. crude stocks unexpectedly rose by 1.2 million barrels in the week to May 31, contrasting analyst expectations of a 2.3 million barrel drawdown, according to data from the U.S. Energy Information Administration.

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