Crude prices rise on expectations of Fed pause

Oil prices rose on Wednesday as investors awaited the outcome of the Federal Reserve’s meeting later in the day after bullish oil demand growth forecasts from the International Energy Agency (IEA) and Opec.

Brent crude futures were up 76c, or 1%, at $75.05 a barrel by 9.16am GMT. West Texas Intermediate was up 63c, or 0.9%, at $70.05. Both benchmarks climbed more than 3% the previous day on hopes of rising demand after China’s central bank lowered a short-term lending rate.

Traders expect the US central bank’s Federal Open Market Committee to pause interest rate hikes because of uncertainty about the economic outlook and the lagged effects of 10 rate increases since March 2022.

Higher interest rates strengthen the dollar, making commodities denominated in the US currency more expensive for holders of other currencies. A pause by the Fed is likely to spur economic growth and oil demand, supporting prices.

“Rates will most likely remain unchanged today when the Fed contemplates its next move, but the more salient question is whether this pause also means that the peak rate of the current cycle has been reached,” said PVM Oil analyst Tamas Varga.

The IEA, meanwhile, increased its oil demand growth forecast for this year by 200,000 barrels a day to 2.4-million bbl/day, lifting the projected total to 102.3-million bbl/day.

However, the agency expects economic headwinds to reduce growth to 860,000 bbl/day next year and increasing use of electric vehicles to help to reduce that to 400,000 bbl/day in 2028 for overall demand of 105.7-million bbl/day.

The IEA’s 2023 oil demand growth figure is slightly above that of Opec.

On the supply side, US crude oil stocks rose by about 1-million barrels in the week ended June 9, according to market sources citing American Petroleum Institute figures. That compares with an average estimate of a 500,000 barrel decline from analysts surveyed by Reuters.

Government data on stockpiles is due later in the day.

Reuters