By Erwin Seba
(Reuters) – Oil futures rose on Thursday after the U.S. Energy Information Administration (EIA) reported a draw on crude and data showing a cooling labor market raised hopes the Federal Reserve could soon cut interest rates.
futures settled at $85.71 a barrel, up 64 cents, or 0.75%. The session high of $85.89 was the highest since May 1.
U.S. West Texas Intermediate (WTI) futures for July, expiring Thursday, ended at $82.17 a barrel, up 60 cents, or 0.74%.
“The market is definitely recovering,” said Phil Flynn, an analyst at Price Futures Group.
Crude inventories fell by 2.5 million barrels to 457.1 million barrels in the week ended June 14, the EIA said, compared with analysts’ expectations in a Reuters poll for a decline of 2.2 million barrels .
Shares at the futures delivery center in Cushing, Oklahoma, rose 307,000 barrels, the EIA said.
There was no WTI settlement on Wednesday due to a US holiday, keeping trading largely subdued. The more active August contract rose 60 cents to $81.31.
The number of Americans filing new claims for unemployment benefits fell last week.
The momentum in the labor market has ebbed along with the economy as a whole, as the Fed has tightened anti-inflation policies. Now that that pressure is easing, an interest rate cut remains on the table this year.
Lower rates could support oil prices, which have been dragged down this year by weak global demand. A U.S. rate cut would make borrowing cheaper in the world’s largest economy, boosting demand for oil as production picks up.
Oil prices are also likely to remain supported by a growing geopolitical risk premium due to conflict in the Middle East, said ActivTrades analyst Ricardo Evangelista.
Israeli forces bombed areas in the central Gaza Strip overnight as tanks deepened their advance towards Rafah in the south.
However, expectations of a stock build appear to be overshadowing fears of escalating geopolitical tensions for now, said Priyanka Sachdeva, senior market analyst at Phillip Nova.
A rebound in summer oil demand, refineries and persistent weather risks, along with extended production cuts by producer group OPEC+, mean that “oil balances should tighten and inventories start to shrink over the summer months,” commodities analysts wrote from JPMorgan.
The Bank of England kept its key interest rate unchanged at a 16-year high of 5.25% ahead of the UK national election on July 4. (This story has been corrected to change the crude inventory data to 2.5 million barrels, not 5.9 million barrels). to 2.2 million, not 1.9 million, in paragraph 5, and to say that inventories increased by 307,000 barrels, not decreased by 1.3 million barrels, in paragraph 6)
