Oil Prices Climb on a U.S. Inventory Draw and Inflation Optimism

Crude oil prices climbed higher earlier today following signs that demand is in a healthy condition and the U.S. economy is not in too bad a shape either.

The change in trader sentiment followed the release of the EIA’s latest weekly petroleum status report that revealed a larger-than-expected draw of 2.5 million barrels for the week to May 10. Fuel inventories also booked declines, although much smaller, which may have helped the more bullish sentiment.

Further support for prices came from the latest data on inflation, which showed a 0.1% decline in April from March. The news sent the stock market to record highs at closing time on Wednesday, refueling hopes of rate cuts at some later point in the year.

More good news came from retail sales data for April, which showed virtually no change from March. The lack of change was attributed to high interest rates and already existing inflation, which curbed spending but in market circles this was taken as a positive.

“Consumer spending is slowing as elevated interest rates weigh on rate-sensitive spending and as the labor market cools,” Capital Economics deputy chief U.S. economist Michael Pearce told the AP.

"A more tamed read for U.S. April inflation and a far weaker-than-expected read in U.S. retail sales seem to offer room for the Fed to consider earlier rate cuts, with market expectations leaning more firmly for policy easing to kickstart in September this year," IG analyst Yeap Jun Rong told Reuters.

“Recent macro data from the US has raised expectations that the Fed could start cutting rates soon, which will be providing some support to oil,” ING’s Warren Patterson said, as quoted by Bloomberg although separately he cautioned against too much optimism, recalling Fed chair Jerome Powell’s recent reminder that the central bank would not rush with rate cuts.

At the time of writing WTI was up 0.59% at 79.09 while Brent had risen 0.54% to 83.20.

By Irina Slav for Oilprice.com

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