WTI Oil Prices Extend Gains Amid Speculation Of Fed Rate Cuts

West Texas Intermediate (WTI) oil prices extended their gains for the third consecutive session, trading around $75.50 per barrel during the Asian session on Friday. This upward trend in crude oil prices is largely driven by rising speculation of an interest rate cut by the U.S. Federal Reserve (Fed) in September, following a 25-basis point rate cut by the European Central Bank (ECB) on Thursday.

A Reuters poll conducted between May 31 and June 5 indicated that nearly two-thirds of economists now anticipate an interest rate cut by the Fed in September. Moreover, the CME FedWatch Tool suggests the probability of a Fed rate cut in September by at least 25 basis points has surged to nearly 70%, up from 51% just a week earlier.

Expectations for two interest rate cuts this year by the Fed have been bolstered by lower employment data from the United States, the world’s largest oil consumer. Lower interest rates are expected to stimulate economic activity and boost oil demand.

The ADP US Employment Change report revealed that 152,000 new workers were added to payrolls in May, marking the lowest figure in four months and falling short of the forecasted 175,000. Additionally, initial jobless claims increased by 8,000 to 229,000 for the week ending May 31, exceeding market expectations of 220,000 and representing the highest level since the eight-month high of 232,000 recorded in early May. Market participants are now eagerly awaiting the release of further U.S. employment data on Friday, including Average Hourly Earnings and Nonfarm Payrolls.

Adding to the bullish sentiment, the Organization of the Petroleum Exporting Countries and its allies (OPEC+) agreed on Sunday to extend most of their supply cuts into 2025. However, the group allowed for voluntary cuts from eight member countries to be gradually eased starting in October. By December, over 500,000 barrels per day (bpd) are expected to re-enter the market, with a total of 1.8 million bpd projected to return by June 2025, according to Reuters.

The combination of potential rate cuts by the Fed, lower-than-expected employment data, and strategic decisions by OPEC+ are key factors influencing the current rise in WTI oil prices.