Oil prices steady as US rate-cut hopes contend with economic slowdown signals

NEW YORK – Oil prices steadied on Thursday as investors wrestled with mixed signals about crude demand, with concerns about an economic slowdown in the US contending with rising expectations the Federal Reserve would soon cut interest rates.

Brent futures settled at USD 85.11 a barrel, rising 3 cents, while US West Texas Intermediate (WTI) crude fell 3 cents to settle at USD 82.82 a barrel. Both benchmarks were up in the previous trading session.

The number of Americans filing new applications for unemployment benefits rose more than expected last week, while initial claims for state unemployment benefits increased by 20,000 to a seasonally adjusted 243,000 for the week ended July 1.

The data strengthened the case for the Fed to speed up rate-cutting plans, which could spur more spending on oil.

“I believe that healthy expectations of a Fed rate cut in the not-so-distant future will limit downside,” Tamas Varga of oil broker PVM told Reuters.

Fed officials said on Wednesday the US central bank is closer to cutting rates given inflation’s improved trajectory and a labor market in better balance, possibly setting the stage for a reduction in borrowing costs in September.

US economic activity expanded at a slight to modest pace from late May through early July, with firms expecting slower growth ahead, according to a report released by the Fed on Wednesday.

The rising jobless claims, however, also signaled an economic easing that could cut into crude demand, and kept oil prices from moving higher, said John Kilduff, a partner at Again Capital in New York.

“The reality on the ground is that we’ve got a slowing economy that could potentially soften crude oil demand,” Kilduff said.

Despite government data on Wednesday that showed US crude inventories fell by 4.9 million barrels last week, more than forecast by analysts in a Reuters poll, weak US gasoline demand kept oil prices from moving higher, Kilduff said.

Economic growth in China, which is the biggest importer of crude oil, also weighed on prices. Chinese leaders signaled on Thursday that Beijing would stay the course with economic policy, though few concrete details were disclosed. Together, those events helped to check investor hopes of a push to boost consumption in the world’s second-largest economy.

The European Central Bank kept interest rates unchanged as expected and gave no hints about its next move, arguing that domestic price pressures remain high and inflation will be above its target well into next year.

A mini OPEC+ ministerial meeting scheduled for early August, meanwhile, is unlikely to recommend changing the group’s oil output policy, which includes a plan to start unwinding one layer of crude output cuts from October, three sources told Reuters.

One of the three OPEC+ sources, all of whom declined to be identified by name, said the meeting would serve as a “pulse check” for the health of the market.

(Reporting by Laila Kearney, Paul Carsten and Alex Lawler in London, Arunima Kumar in Bengaluru, Arathy Somasekhar in Houston, and Jeslyn Lerh in Singapore; Editing by David Goodman, Elaine Hardcastle, Paul Simao, Jane Merriman, and Rod Nickel)