Oil Prices Rise As Fed Rate Cut, Trump-Putin Talks Loom

Oil prices rose about 1% on Thursday after U.S. President Donald Trump warned of "severe consequences" if his talks with Russian President Vladimir Putin on Ukraine fail and on expectations that a U.S. interest rate cut next month could spur oil demand.

Central banks, like the U.S. Federal Reserve, use interest rates to control inflation. Lower interest rates reduce consumer borrowing costs and can boost economic growth and demand for oil. Brent crude futures were up 87 cents, or 1.3%, to $66.50 a barrel at 10:53 a.m. EDT (1453 GMT), while U.S. West Texas Intermediate (WTI) crude rose 88 cents, or 1.4%, to $63.53. Those price gains pushed both crude benchmarks out of technically oversold territory for the first time in three days. Brent closed on Tuesday at its lowest price since June 5 and WTI closed at its lowest price since June 2 due in part to bearish inventory and supply data from the U.S. Energy Information Administration and the International Energy Agency.

Putin on Thursday praised "sincere efforts" by the U.S. to end the war in Ukraine and floated the prospect of a nuclear arms deal ahead of a summit on Friday in Alaska with Trump. U.S. allies in Europe have urged Trump to stand firm.

Russia was the second-biggest producer of crude in 2024 behind the U.S., so any agreement that may ease sanctions on Moscow would likely boost the amount of Russian oil available for export to global markets. Trump on Wednesday threatened "severe consequences" if Putin does not agree to peace in Ukraine. The U.S. president did not specify what the consequences could be, but he has warned of economic sanctions if the meeting on Friday proves fruitless.

Trump has threatened to enact secondary tariffs on buyers of Russian crude, primarily China and India, if Russia continues its war in Ukraine.

"The uncertainty of U.S.-Russia peace talks continues to add a bullish risk premium given Russian oil buyers could face more economic pressure," Rystad Energy said in a client note. Some analysts, however, remained sceptical that Trump would take action that could significantly disrupt oil supplies.

FED RATE CUT

Expectations that the Fed will cut interest rates in September also propped up oil prices. Traders overwhelmingly believe a cut will happen next month after U.S. consumer prices increased at a moderate pace in July.

U.S. Treasury Secretary Scott Bessent said he thought an aggressive half-percentage-point cut was possible given recent weak employment numbers.

But a jump in U.S. wholesale prices last month looks to have all but erased the possibility that the Fed will deliver a jumbo-sized half-percentage-point interest rate cut in September, though expectations for a quarter-percentage-point move next month, followed by another in October, remain intact.

San Francisco Fed President Mary Daly has pushed back against the need for a 50-basis-point rate cut at the U.S. central bank's September 16-17 meeting, the Wall Street Journal reported on Thursday.

In Europe, meanwhile, Norwegian oil and gas investments are expected to peak this year, and start declining next year as major projects are completed, a statistics office survey of industry players showed on Thursday.

Norway produces about 2% of global oil. It became Europe's largest supplier of pipeline gas after Russia's invasion of Ukraine in February 2022.

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