Oil prices rise on hopes of US interest rate cuts that will boost fuel demand

By Yuka Obayashi

TOKYO (Reuters) – Oil prices rose on Thursday, paring some of the previous day's losses on hopes that possible U.S. interest rate cuts could boost the economy and fuel demand. However, persistent concerns about a slowdown in global demand curbed gains.

Brent crude futures rose 17 cents, or 0.2%, to $79.93 a barrel by 00:29 GMT. U.S. West Texas Intermediate crude rose 23 cents, or 0.3%, to $77.21 a barrel.

Both benchmarks fell more than 1% on Wednesday after U.S. crude oil inventories unexpectedly rose and concerns about a broader conflict in the Middle East eased.

US consumer prices rose moderately in July and the annual increase in inflation slowed to below 3 percent for the first time in nearly three and a half years, boosting expectations that the Federal Reserve will cut interest rates next month.

“We saw a correction in Asian trading as the oil market was oversold on Wednesday,” said Yuki Takashima, economist at Nomura Securities, adding that investors are betting the Fed could start cutting interest rates next month.

“Nevertheless, oil prices are likely to remain under pressure going forward as concerns remain that global demand, particularly in China, will be sluggish,” Takashima said, predicting that WTI would hit the $72 mark in early August.

U.S. crude oil inventories rose by 1.4 million barrels in the week ended August 9, compared with an estimate of 2.2 million barrels, marking the first increase since late June, according to data from the Energy Information Administration (EIA) released Wednesday. [EIA/S]

Earlier this week, the International Energy Agency revised downward its forecast for oil demand growth in 2025, citing the impact of a weakened Chinese economy on consumption. Earlier, OPEC had cut expected demand for 2024 for similar reasons.

Global demand for jet fuel is also expected to weaken as lower consumer spending impacts travel budgets, which could negatively impact oil prices in the coming months.

In addition to concerns about demand and rising oil prices, investors remain concerned about Iran's potential response to the killing of the leader of the Palestinian Islamist group Hamas last month. Three senior Iranian officials have said only a ceasefire agreement in Gaza could prevent Iran from directly retaliating against Israel for the killing.

Hamas said on Wednesday it would not take part in a new round of ceasefire talks in the Gaza Strip scheduled for Thursday in Qatar, dimming hopes for a negotiated ceasefire.

(Reporting by Yuka Obayashi; Editing by Sonali Paul)