- WTI price trades close to a six-week high on multiple tailwinds.
- Firm Fed rate-cut prospects improve the Oil demand outlook.
- Geopolitical tensions in the Middle East and Europe have raised supply concerns.
West Texas Intermediate (WTI), futures on NYMEX, hold gains near fresh six-week high near $80.70 in Wednesday’s Asian session. The Oil price strengthens due to an improvement in expectations that the Federal Reserve (Fed) will start reducing interest rates from the September meeting and deepening tensions in the Middle East and Europe.
The CME FedWatch tool shows that traders see a 67% chance of the Fed reducing key rates in September. Traders are also pricing in two rate cuts, this one against one signaled by policymakers in their latest interest rate projections.
Increased confidence in investors for Fed rate cuts in September is the outcome of the soft United States (US) Consumer Price Index (CPI) report for May, which indicated that the progress in the disinflation process has resumed. Also, lower-than-expected growth in the US Retail Sales for May has boosted early rate-cut expectations. The Retail Sales data excluding automobiles- a measure of consumer spending- contracted for the second straight month by 0.1%.
The high possibility of early rate cuts by the Fed is a favorable situation for the Oil price, as it improves sentiment for the global economic outlook.
On the geopolitical front, Ukraine’s drone attack on an oil terminal in Russia's southern port of Azov and the announcement of an all-out war by Israeli Foreign Minister Israel Katz against Lebanon's Hezbollah have triggered supply concerns.
Going forward, the next trigger for the Oil price will be Energy Information Administration (EIA) Crude Oil Stocks Change data for the week ending June 14, which will be published on Thursday due to a holiday in US markets on account of Juneteenth.
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