Oil gains on US rate cut expectations

The front-month ICE Brent contract gained $1.80/bbl to settle at $79.02/bbl on Friday, after US Federal Reserve (Fed) chairman Jerome Powell said that “the time has come” for an interest rate cut.

PHOTO: US Fed's headquarters in Washington DC. Getty Images

Oil prices got a boost following Powell’s speech at the annual Jackson Hole Economic Symposium in Wyoming last week. Prices moved higher as the global oil market grew optimistic after Powell reiterated the Fed’s trajectory of an interest rate cut at its next policy meeting in September.

“The time has come for policy to adjust,” Powell said during his speech at the Kansas City Fed’s annual conference. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks,” he added.

This news has boosted Brent’s price as lower interest rates make dollar-denominated commodities like oil more affordable for holders of other currencies, thereby supporting demand growth.

Last week, the central bank released minutes from its July meeting which showed that a “vast majority” of Fed officials are interested in lowering rates in September.

“Crude futures were enjoying continued upward momentum from Friday’s market cheer spurred by Federal Reserve Chairman Jerome Powell cementing September rate cut hopes as trading began for a fresh week,” VANDA Insights’ founder and analyst Vandana Hari remarked.

The US Fed will meet next to discuss interest rate policies on 17 and 18 September, where an initial rate cut is widely anticipated. The Fed has kept its benchmark interest rate within the 5.25-5.50% range for over a year.

By Aparupa Mazumder

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