Oil prices saw a slight decline at the end of the previous week, due to tepid U.S. fuel demand and investors cashing in profits as the quarter ended. This comes as inflation data for May increased the likelihood of the Federal Reserve cutting interest rates later this year.

Market Movements

Brent crude futures for August, which expired on Friday, inched up by 2 cents to $86.41 a barrel. The more active September contract dropped 0.3% to $85 a barrel. Similarly, U.S. West Texas Intermediate (WTI) crude futures decreased by 20 cents, or 0.24%, settling at $81.54 per barrel.

For the week, Brent recorded a marginal rise of 0.02%, while WTI futures slipped by 0.2%. Both benchmarks, however, posted approximately 6% gains for the month.

Impact of EIA Report

The Energy Information Administration’s (EIA) Petroleum Supply Monthly report released on Friday showed that U.S. oil production and demand reached a four-month high in April. However, gasoline demand fell to 8.83 million barrels per day, the lowest since February. This lower demand contributed to cautious market sentiment.

Phil Flynn, an analyst at Price Futures Group, stated, “The EIA’s report indicated a lackluster gasoline demand, which didn’t encourage further buying.”

Profit-Taking and Economic Indicators

Some traders took profits at the quarter’s end following earlier price rallies. Meanwhile, the U.S. personal consumption expenditures (PCE) price index remained flat in May, raising hopes for potential rate cuts by September. Despite this, the financial markets showed little reaction to the inflation data.

Charalampos Pissouros, a senior investment analyst at brokerage XM, noted, “For oil traders, the inflation data had little immediate impact.”

Expectations of Fed Rate Cuts

Anticipation of a Federal Reserve easing cycle has triggered a risk rally in stock markets. The CME FedWatch tool now shows a 64% chance of a rate cut in September, up from 50% a month ago. Lower interest rates could increase oil demand by boosting consumer spending power.

Amarpreet Singh, an analyst at Barclays, highlighted in a client note, “Oil prices are aligning with our fair value estimates, indicating strong fundamentals.” Barclays expects Brent crude to stay around $90 a barrel in the coming months.

Market Outlook

A Reuters poll on Friday suggested that oil prices may remain stable in the latter half of 2024. Concerns about Chinese demand and potential supply increases from key producers might balance out geopolitical risks. The poll forecasts Brent crude to average $83.93 a barrel in 2024, with U.S. crude at $79.72.

Additional Market Indicators

The U.S. active oil rig count, an early indicator of future production, fell by six to 479 this week, the lowest since December 2021, according to energy services firm Baker Hughes. Additionally, money managers increased their net long positions in U.S. crude futures and options in the week ending June 25, as reported by the U.S. Commodity Futures Trading Commission (CFTC).

Conclusion

Despite the recent dip in oil prices, market fundamentals and potential changes in monetary policy keep the outlook cautiously optimistic. The balance of supply, demand, and geopolitical factors will continue to influence oil price movements in the coming months.