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Oil rises as market awaits Fed interest rate decision
Global Banking & Finance Review®
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By Ahmad Ghaddar
LONDON(Reuters) – Oil prices rose on Wednesday as investors awaited the outcome of the U.S. Federal Reserve’s June meeting after bullish oil demand growth forecasts from the International Energy Agency (IEA) and OPEC.
Brent crude futures were up 76 cents, or 1%, at $75.05 a barrel by 0916 GMT. U.S. West Texas Intermediate (WTI) crude was up 63 cents, or 0.9%, at $70.05.
Both benchmarks climbed more than 3% the previous day on hopes of rising fuel demand after China’s central bank lowered a short-term lending rate.
Market participants expect the U.S. central bank’s Federal Open Market Committee (FOMC) to pause interest rate hikes because of uncertainty over the economic outlook and the lagged effects of 10 rate increases since March 2022.
Higher interest rates strengthen the dollar, making commodities denominated in the U.S. currency more expensive for holders of other currencies. A pause in the Fed’s rate increases would spur economic growth and oil demand, supporting prices.
“Rates will most likely remain unchanged today when the Fed contemplates its next move, but the more salient question is whether this pause also means that the peak rate of the current cycle has been reached or not,” said PVM Oil analyst Tamas Varga.
The IEA, meanwhile, increased its oil demand growth forecast for this year by 200,000 barrels per day (bpd) to 2.4 million bpd, lifting the projected total to 102.3 million bpd.
However, the agency expects economic headwinds to reduce growth to 860,000 bpd next year and increasing use of electric vehicles to help to reduce that to 400,000 bpd in 2028 for overall demand of 105.7 million bpd.
The IEA’s 2023 oil demand growth figure is slightly above that of the Organization of the Petroleum Exporting Countries (OPEC).
On the supply side, U.S. crude oil stocks rose by about 1 million barrels in the week ended June 9, according to market sources citing American Petroleum Institute figures, contrary to an average estimate of a 500,000 barrel decline from analysts polled by Reuters.
Government data on stockpiles is due later in the day.
(Reporting by Ahmad Ghaddar; Additional reporting by Andrew Hayley in Beijing; Editing by David Goodman)
Brent crude is a major trading classification of crude oil originating from the North Sea. It serves as a benchmark for oil prices globally and is used to price two-thirds of the world's oil.
West Texas Intermediate (WTI) is a grade of crude oil used as a benchmark in oil pricing. It is sourced from the United States and is known for its high quality and low sulfur content.
The Federal Reserve, often referred to as the Fed, is the central banking system of the United States. It regulates the U.S. monetary and financial system, including setting interest rates.
Oil demand growth refers to the increase in the consumption of oil over a specific period. It is influenced by various factors, including economic activity, technological advancements, and energy policies.
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