Oil prices surge over anticipation of interest rate cut by US Fed
Date
8/27/2024 3:57:22 AM
(MENAFN) Oil prices experienced an uptick on Monday, driven by the growing anticipation of an interest rate cut by the US Federal Reserve (Fed) and continued delays in cease-fire negotiations in the Middle East. The international benchmark, brent crude, saw a rise of 0.73 percent, reaching USD78.72 per barrel at 09:33 a.m. local time (0633 GMT), compared to the previous session's close of USD78.15. Similarly, the US benchmark, West Texas Intermediate (WTI), increased by 0.82 percent, trading at USD75.44 per barrel, following a close of USD74.83 in the prior session. These gains reflect market optimism amid geopolitical tensions and potential shifts in US monetary policy.
The rise in oil prices comes on the heels of remarks made by US Federal Reserve Chair Jerome Powell, who, during the annual Jackson Hole symposium in Wyoming, indicated the possibility of an interest rate cut at the Fed's upcoming meeting in September. Powell's speech, which has been closely watched by global markets, suggested that the Fed might be ready to ease its monetary policy, a move that could stimulate economic activity and subsequently boost oil demand in the US, the world's largest consumer of oil. Powell expressed growing confidence that inflation is on a sustainable path back to the Fed's 2 percent target, signaling that the time might be ripe for a policy adjustment.
In his speech, Powell noted that the trajectory of interest rate cuts would be guided by incoming economic data, the evolving outlook, and a careful assessment of risks. He emphasized that the overall US economy continues to grow at a solid pace, bolstering the case for a potential rate reduction. Analysts are now forecasting that the Fed will likely implement a 25 basis point cut in interest rates next month, with a possibility of a more substantial 50 basis point cut still under consideration. The money market currently predicts a total of 100 basis points in cuts by the end of the year, with a 67.5 percent probability for a 25 basis point cut in September and a 32.5 percent chance for a 50 basis point cut.
Adding to the upward pressure on oil prices are the stalled cease-fire negotiations in the Middle East, a region that holds a significant portion of the world's oil reserves. The ongoing blockade in these negotiations has heightened concerns among market participants about potential disruptions in oil supply, further contributing to the increase in prices. As the geopolitical situation remains uncertain, supply concerns are likely to continue influencing market dynamics, keeping oil prices elevated in the near term.
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