Key points:
Oil prices held steady near two-month highs, buoyed by expectations of rising fuel demand and potential economic growth from US interest rate cuts. Brent crude oil (Symbol: UKOUSD) increased to $86.80 per barrel. Similarly, the WTI crude oil (Symbol: USOUSD) reached $83.51 per barrel.
The images above show oil prices rallying, as observed on the VT Markets app.
The summer travel season in the US is a major driver of gasoline demand. The American Automobile Association (AAA) forecasted a 5.2% increase in travel during the Independence Day holiday compared to last year. This surge in travel, especially car travel which is up 4.8% year-over-year, is expected to boost gasoline demand, helping to recover from a subdued first half of 2024.
Further, signs of easing inflation in the US have renewed hopes for interest rate cuts by the Federal Reserve. Data showed US manufacturing activity contracted for a third month, and input prices dropped to a six-month low.
Additionally, the Commerce Department reported unchanged inflation data for May, reinforcing the possibility of a rate cut, potentially as early as September. Lower interest rates could stimulate economic activity, thereby increasing oil demand.
Markets are also wary of potential disruptions from Hurricane Beryl, which struck the Caribbean as a category 4 storm. The storm could impact US oil refining and offshore production if it moves into the Bay of Campeche of Mexico.
The National Hurricane Center warned of an “extremely dangerous situation,” further elevating supply concerns.
While the current outlook appears supportive for oil prices, lower-than-expected demand growth in Asia has capped gains. Crude imports to Asia in the first half of 2024 were lower than the previous year, mainly due to reduced imports by China, the largest oil importer in the world. Traders should brace for continued volatility, sticking to proper risk management in making informed trading decisions in oil trading.
