Oil prices climb 2% to 1-week high as Fed rate cut, Trump-Putin talks loom

By Scott DiSavino

NEW YORK (Reuters) -Oil prices climbed about 2% to a one-week high on Thursday after U.S. President Donald Trump warned of "severe consequences" if his talks with Russian President Vladimir Putin on Ukraine fail and on expectations that a U.S. interest rate cut next month could spur oil demand.

Central banks, like the U.S. Federal Reserve, use interest rates to control inflation. Lower interest rates reduce consumer borrowing costs and can boost economic growth and demand for oil.

Brent crude futures rose $1.03, or 1.6%, to $66.66 a barrel at 1:32 p.m. EDT (1732 GMT), while U.S. West Texas Intermediate (WTI) crude rose $1.14, or 1.8%, to $63.79.

Those price gains pushed both crude benchmarks out of technically oversold territory for the first time in three days and put Brent on track for its highest close since August 6.

Brent closed on Tuesday at its lowest price since June 5 and WTI closed at its lowest price since June 2 due in part to bearish inventory and supply data from the U.S. Energy Information Administration and the International Energy Agency. [EIA/S]

Trump said on Thursday he thought Putin was ready to make a deal on ending his war in Ukraine after the Russian president floated the prospect of a nuclear arms agreement on the eve of their summit in Alaska.

But on Wednesday, Trump threatened "severe consequences" if Putin does not agree to peace in Ukraine. The U.S. president did not specify what the consequences could be, but he has warned of economic sanctions if the meeting on Friday proves fruitless.

Russia was the second-biggest producer of crude in 2024 behind the U.S., so any agreement that could ease sanctions on Moscow would likely boost the amount of Russian oil available for export to global markets.

Trump has threatened to enact secondary tariffs on buyers of Russian crude, primarily China and India, if Russia continues its war in Ukraine.

"The uncertainty of U.S.-Russia peace talks continues to add a bullish risk premium given Russian oil buyers could face more economic pressure," Rystad Energy said in a client note. 

Some analysts, however, remained sceptical that Trump would take action that could significantly disrupt oil supplies.

FED RATE CUT

Expectations that the Fed will cut interest rates in September also propped up oil prices. Traders overwhelmingly believe a cut will happen next month after U.S. consumer prices increased at a moderate pace in July.

U.S. Treasury Secretary Scott Bessent said he thought an aggressive half-percentage-point cut was possible given recent weak employment numbers.

But the Fed has a dilemma, U.S. producer prices increased by the most in three years in July amid a surge in the costs of goods and services, suggesting a broad pickup in inflation was imminent.

In other energy news, Norwegian oil and gas investments are expected to peak this year, and start declining next year as major projects are completed, a statistics office survey of industry players showed on Thursday.

Norway produces about 2% of global oil. It became Europe's largest supplier of pipeline gas after Russia's invasion of Ukraine in February 2022.

In Mexico, President Claudia Sheinbaum said on Thursday that Carlos Trevino, former CEO of state oil company Pemex, had been arrested in the United States and would be deported to stand trial in Mexico for corruption charges.

(Reporting by Scott DiSavino in New York, Robert Harvey in London, Katya Golubkova in Tokyo and Siyi Liu in Singapore; Editing by Jan Harvey, Paul Simao and Diane Craft)