Oil prices increased on Monday, driven by expectations of further US Federal Reserve (Fed) policy cut following lower-than-expected US inflation data.
The international oil benchmark of Brent crude increased by 0.20% to $72.79 per barrel at 11.40 a.m. local time (0840 GMT), up from the previous session’s close of $72.64.
The US benchmark West Texas Intermediate also rose by 0.17% to $69.59 per barrel, compared to $69.47 at the close of the prior session.
Both benchmarks rose as a result of lower-than-expected inflation data in the US, which supported the expectation that the Fed would continue to loosen policy rates.
Macroeconomic data revealed that US consumer spending rose by 0.4% in November, missing expectations. Personal incomes in the US grew by 0.3% in November compared to the previous month.
The core personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge excluding food and energy, increased by 0.1% on a monthly basis and 2.8% on an annual basis in November, falling short of expectations.
The Fed is expected to maintain higher policy rates for an extended period to curb inflation. However, the recent lower-than-expected inflation data has alleviated market concerns following the Fed’s rate cut.
Remarks from Fed Presidents further reinforce the market’s view. Chicago Fed President Austan Goolsbee expects a more shallow path of rate cuts in 2025, but inflation is generally slowing.
John Williams, president of the New York Fed, said he included President-elect Donald Trump’s policies in his forecasts, citing their significance in shaping the economic outlook.
San Francisco Fed President Mary Daly noted that she expects significantly fewer interest rate cuts next year than initially anticipated.
Additionally, the decline in the US dollar index against major currencies also contributed to the rise in oil prices.
The US dollar index, which measures the value of the US dollar against a basket of foreign currencies, declined by 0.60% on Monday, compared to Friday’s closing.
This weaker dollar is expected to stimulate demand for oil by making it more affordable for those using foreign currencies.
Meanwhile, concerns about weakening Chinese demand and a potential global oil surplus next year are capping price gains.
Trading volumes in both US and European markets are anticipated to remain subdued throughout the week as market participants observe the Christmas holiday break.
