Crude Oil Prices Rally as Inventory Declines and Rate Cut Hopes Emerge

On Thursday, crude oil markets saw a notable shift as oil futures surged. This was a direct reaction to the latest data from the U.S. Energy Information Administration. The latter reported a massive decrease in crude inventories. Simultaneously, the current cooling in job markets could indicate the need for the Federal Reserve interest rate cut.

First, the EIA report was explained in terms of a declining crude inventory level. For the week ending June 15, inventories drew down 5.9 million barrels. This is far more than the analysts’ consensus of 1.9 million barrels, and it seems too strong a figure to ignore. Second, a decline in crude oil inventory indicates that the supply side is becoming tight—this is noted to be a positive factor.

Concerning the crude oil prices, West Texas Intermediate underwent some shifts earlier this week but is still trying to test near the vital $80 resistance mark. Often a landmark can not only signify a significant psychological hurdle, but also the resistance noted in the previous years. I’m assuming that the oil price could head higher if it’s breahced on a strong daily close basis.

The dynamics of the labor market also play a significant role. The current weakening of the U.S. labor market result from the policies held by the Federal Reserve, including high interest rates taken to fight inflation . The understanding that we can soon observe a cut of the rates seems to lead oil markets to a brighter way. Softer rates let the economy accept cheaper borrowing. As a result, demand for oil in the leading economy of the world tends to shift upwards due to the high scale of production.

The seasonality of the demand for oil products provides another field for consideration. Summertime often leads to higher consumption due to the wish to get somewhere for holidays. I believe that geopolitics and provocation of the United States also play a significant role in the politics. Thus, the ever-complex picture, which does not seem to become less sophisticated lately, could suggest short pullbacks that will consequently turn into the purchasing point for crude oil investors.

Currently, the situation of the crude oil market can be characterized by massive draws of crude oil inventories and ease-off employment indicators. The possibility of rate cuts is just around the corner. The extent to which the Federal Reserve cuts the rate has varied over years and cannot be predicted for sure. At the same time, the trend seems to be moving forward. Interaction between the reduced scale of oil supplies, employment indicator downturns, and contradictory opinions in peripheral regions looks to be the combination that leads to higher volatility in the asset markets and provides traders with occasional trading opportunities. Thus, one should monitor and act accordingly—if not adequately, at least in time.

Pete Southern About Pete Southern
Pete Southern is an active trader, chartist and writer for market blogs. He is currently technical analysis contributor and admin at this here blog.

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