U.S. Oil Prices Soar as CPI Data and Reduction In Crude Inventories Offer Traders Hope

The latest US consumer price index (CPI) data seemed to offer a slowdown in rampant inflation pressures. This development has led traders to feel increasingly optimistic about the prospect of interest rate cuts, with the potential to stimulate economic activity which could in turn further increase energy demand. However, it is unclear whether the recent chart in oil prices will persist - just as ambiguous is the potential of a shift in the market is imminent. Alex Hodes, from the StoneX energy team, offered his insights on the energy market recently.

Market Highlights

The price of continuous West Texas Intermediate (WTI) crude measure seems to have put in a short-term peak on May 20th. Similarly, July Brent crude, the international benchmark, rose by 52 cents, or 0.6%, reaching $83.27 per barrel on ICE Futures Europe. In parallel, June gasoline prices surged by 1.6% to $2.54 per gallon, and June heating oil rose by 0.9% to settle at $2.44 per gallon. Natural gas for June delivery also saw a rise, closing at $2.50 per million British thermal units, up 3.3%. This price gain occurred after the EIA reported a 70 billion cubic feet rise in domestic supplies, slightly below forecasts by analysts of 76 billion cubic feet.

Economic Influences

The CPI report released on Wednesday indicated a considerable moderation in inflation pressures through April, leading to a depreciation of the dollar, and resulting in increased demand for commodities. The core CPI, excluding food and energy costs, showed an annual increase of 3.6%, down from 3.8% in March. Following this inflation data, many expect there to be two interest rate cuts by the Federal Reserve in 2024. This in turn has alleviated concerns about economic growth and energy consumption for the year.

"Financial markets now have placed the most bets on a September interest-rate cut by the Federal Reserve, which would continue to temper the dollar strength and shift that strength over to commodities and equities," the StoneX analysts said.

Additionally, crude oil prices benefitted by consecutive declines in U.S. commercial crude inventories. The Energy Information Administration's (EIA) recent report highlighted an increase in gasoline supplied—an indicator of consumer demand at the pump—which rose by 78,000 barrels per day to 8.875 million bpd, the highest level since late March.

Future Projections

June 1 may further be a key date for traders, as this is when the Organization of the Petroleum Exporting Countries and its allies (OPEC+) are set to meet. A possible hold on output targets with ongoing geopolitical tensions and the approaching U.S. elections could further constrain supply, which could in turn push oil prices higher.

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