Oil prices post weekly gain amid hopes of Fed lowering interest rates

Fifth Avenue in New York. Retail sales in the US last month dropped by 0.8 per cent, the biggest decline in about a year. AP

Oil prices settled higher on Friday and posted a weekly gain amid hopes that the US Federal Reserve will start cutting interest rates soon, which is expected to boost crude demand.

Brent, the benchmark for two thirds of the world’s oil, reversed earlier losses to close 0.74 per cent higher at $83.47 a barrel. West Texas Intermediate, the gauge that tracks US crude, added 1.49 per cent at settle at $79.19 a barrel.

Weakness in the US dollar was the primary reason for Thursday's increase in crude oil prices, US-based energy company Tellurian said in a note.

“The dollar weakened following news that retail sales decreased in January,” it said.

Retail spending in the US, the world’s largest economy, fell more than expected in January due to cold weather, sparking hopes that the Fed will start lowering interest rates in coming months.

Sales last month dropped by 0.8 per cent, the biggest decline in about a year, the US Commerce Department reported.

“The retail sales data for January were poor. Not only that, they were much poorer than already low expectations,” said Craig Erlam, senior market analyst at Oanda.

The latest data comes after inflation in the US rose more than expected in January.

The Fed has raised interest rates 11 times in a year and a half, bringing the key federal funds rate to between 5.25 per cent and 5.5 per cent, the highest since 2001.

UAE lender Emirates NBD expects three rate cuts in 2024, starting from the Fed’s June meeting and continuing once every quarter until the end of the year.

“Activity and labour market data may start to weaken by then, but our view remains that lowering real rates will be the Fed’s motivation for rate cuts, rather than providing stimulus to the economy,” Edward Bell, head of market economics at Emirates NBD, said in a research note this week.

Lower interest rates support economic growth, which supports oil demand.

Oil prices fell by about 1 per cent during day trading on Thursday after the International Energy Agency slashed its 2024 oil demand growth forecast and said global crude consumption was “losing momentum”.

The agency expects crude demand to grow by 1.22 million barrels per day this year, compared with 2.3 million bpd in 2023, it said in its monthly oil market report.

It had previously forecast 2024 demand growth of 1.24 million bpd.

Meanwhile, US crude inventories, an indicator of fuel demand, increased by 12 million barrels in the week that ended on February 9, according to the US Energy Information Administration.

Analysts polled by Reuters were expecting a rise of 2.6 million barrels.

Total petroleum stocks decreased by 3.7 million barrels last week while distillate fuel inventories fell by 1.9 million barrels, the EIA data showed.