The price of oil rose by 1%, and is preparing to record a third weekly increase in a row amid increased expectations of easing the Fed's monetary policy, concerns about supply problems from escalating geopolitical tensions and weather-related disruptions. Market participants are also preparing for the publication of key US inflation data.
A slight pressure on oil is exerted by the strengthening of the US currency. The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) rose by 0.09% to 106.01.
Experts said that with the rates market looking for two rate cuts from the Fed by the end of this year, the price data will serve as validation for whether expectations are being overly dovish. Consensus estimates suggest that the core PCE rose by 0.1% m/m in May after an increase of 0.2% m/m in April. This will be the weakest monthly growth since November 2023. Year-on-year, the core PCE is projected to grow by 2.6%, which will be the smallest increase since March 2021. According to the CME FedWatch Tool, markets see a 64.1% probability of a Fed rate cut in September, and a 75.8% probability of monetary policy easing in November. Easing interest rates could be a boon for oil as it could increase demand from consumers.
As for the demand for petroleum products, on Wednesday, the Energy Information Administration reported an unexpected increase in crude oil inventories amid weakening fuel demand. However, expectations of record travel over the July 4th weekend in the U.S. could lift gasoline demand and help draw stockpiles.