Oil edged up on Tuesday on expectation the US Federal Reserve will cut interest rates for the first time in more than a decade as the central bank seeks to improve market liquidity and support global economic growth.
Optimism over the resumption of China-US trade talks, rising Middle East tensions following the seizure of a British tanker by Iran’s revolutionary guard, and the ongoing production cuts by Opec and its allies are also supporting oil prices.
International benchmark, Brent crude was up 0.6 per cent to $64.12per barrel at 10.12am UAE time. US crude rose 0.7 per cent, to $57.27 per barrel.
“US Fed policymakers are widely expected to cut interest rates by 25 basis points during the coming FOMC [Federal Open Market Committee] meeting on July 30-31,” said Benjamin Lu, commodities analyst at Singapore based Phillip Futures.
“A reduction in borrowing costs by the US central bank looks poised to improve market liquidity and cushion global economic growth.”
The resumption of trade talks between China and the US in Shanghai on Tuesday is not expected to result in an expansive agreement but any warming of relations is likely to spur optimism.
“The probability of a wide-ranging deal between the two countries remains slim,” said Ipek Ozkardeskaya, senior market analyst from London Capital Group on China, US trade talks.
“On top, Hong Kong protests for which Chinese officials blame US’ ‘black hand’ and Beijing’s verbal intervention to restore order will likely not help softening the overall temperament. Anyhow, the expectations are so low that any positive news should be enough to boost hopes for a future deal.”
In the Middle East, tensions rose after Iran's Islamic Revolutionary Guard seized a British-flagged oil tanker Steno Impero in the Strait of Hormuz on July 19 after UK marines seized a ship with Iranian crude off Gibraltar two weeks earlier.
Following the incident, the UK government dispatched two warships to protect British vessels in the strategic waterway, through which more than a third of seaborne oil passes every day.
Opec, Russia and other allies (Opec+) are cutting output by about 1.2 million barrels per day to reduce global oil stocks and boost prices. The agreement, which would have expired in June, has been extended to run until March 2020, after a meeting of Opec+ in Vienna early this month.
That along with dovish signals by the Fed will support oil prices in the third quarter of the year, analysts said.