Key points:

  • Oil prices rose on Thursday, helped by signals from the US Federal Reserve that it may begin cutting rates this year.
  • Brent crude futures rose 5 cents to $80.60 a barrel, while West Texas Intermediate crude futures rose 7 cents.
  • New measures to support the Chinese real estate market also contributed to the growth of the asset.

Oil prices rebounded on Thursday, gaining support from signals from the U.S. Federal Reserve that it might start lowering interest rates and China’s announcement of new measures to bolster its ailing real estate market.

Brent crude futures edged up 5 cents to settle at $80.60 per barrel, while U.S. West Texas Intermediate crude futures gained 7 cents after plummeting more than $2 per barrel in the previous session.

Fed keeps rates unchanged but ends hiking season

Oil prices gained momentum following Federal Reserve Chairman Jerome Powell’s remarks on Wednesday, indicating a potential easing of monetary policy this year. Powell suggested that interest rates have reached their peak and are likely to decline in the coming months, driven by a cooling inflation outlook and strong labor market conditions. However, at the moment, the Fed is keeping rates in the same range and, contrary to the hopes of traders, does not plan to cut them in March.

Despite the Fed’s decision to maintain the current interest rate range for now, expectations for an early rate cut in June were bolstered by data showing a lower-than-expected rise in U.S. labor costs in the fourth quarter. This deceleration in wage growth aligns with the Fed’s assessment of a moderating inflation environment.

The China Factor

Amidst concerns about the potential fallout from the ongoing saga of embattled property developer Evergrande, China rolled out new measures to prop up its ailing real estate sector. The country ended 2023 with its worst decline in new home prices in nearly nine years, adding to the overall economic slowdown and impacting oil demand.

However, JPMorgan analysts predict that China will remain the leading driver of global oil demand growth this year, with oil demand projected to increase by 530,000 barrels per day in 2024 after a surge of 1.2 million barrels last year. These positive expectations for China’s oil demand growth have provided some relief to oil prices, which had fallen recently due to the real estate crisis.

The situation in the Middle East still keeps the market on edge

“Geopolitics aside, we continue to believe that 2024 will be a fundamentally healthy year for the oil market,”

– JPMorgan said in a message to clients.

In the Middle East, concerns about attacks by Yemen-based Houthi forces on shipping in the Red Sea are now driving up costs and disrupting global oil trade.

“The energy market remains on edge as it awaits the US response to the drone attack on US troops in Jordan,”

– ANZ Research said in a note after the Houthi group said it would continue to attack US and British warships.