First ECB Rate Cut In Five Years Boosts Oil, But Analysts Wary Of What's Next

Differing views of demand makes any clear forecasts impossible: File Image/Pixabay

The European Central Bank cutting its interest rates for the first time in five years caused another healthy uptick in oil prices on Thursday, but it's unclear whether the U.S. Federal Reserve will follow suit.

As of 1616 GMT, Brent was up $1.64 to $80.05 per barrel, and West Texas Intermediate rose $1.68 to $75.75.

But even though the ECD's move was viewed as long overdue and accompanied by Denmark's central bank lowering its benchmark interest rate by 25 basis points to 3.35 percent, analysts burned by past empty promises from central banks were wary about what would happen next.

John Kilduff, founding partner at Again Capital, said, "Today the ECB rate cuts are helping, and casting a view that the Fed will finally follow suit here in the U.S. as well which is supportive, but both central banks are cutting in the face of a slowing economy which is not necessarily supportive of oil demand."

For the record, inflation is now down to 2.6 percent in the 20 countries using the euro, from 10 percent in late 2022.

Oil on Thursday was said to have also been supported by ministers of the Organization of the Petroleum Exporting Countries (OPEC) stating that they would tweak their latest output agreement later this year if market support was required; the cartel had earlier agreed to extend most output cuts into 2025 but left room for eight members to unwind their cuts gradually.

The angst that initially greeted the OPEC decision was addressed by Amarpreet Singh, analyst at Barclays, who stated in a note, "Oil markets have over-reacted to the mildly negative OPEC+ meeting outcome; demand indicators have certainly softened somewhat recently, but are not falling off a cliff."

Bjarne Schieldrop, chief commodities analyst at SEB, added that the oil market in general and U.S. shale specifically is much more sensitive to growth in both global demand and non-OPEC production as a result of OPEC: "It is now increasingly clear that there is a limit to how far OPEC+ is willing to go, how much volume it is willing to shed before 'enough is enough'."

JPMorgan analysts offered an optimistic view of market conditions by noting that they expected rising oil inventories  to shift to draws in the third quarter with the OPEC cuts remaining in place at least until October.

In other oil news on Thursday, Bloomberg reported that the $12-billion secondary share offering of Saudi Arabia's oil giant Saudi Aramco has attracted strong demand from both domestic and foreign investors as the June 6 deadline to submit offers arrives; anonymous sources told the news agency that Western and Asian investors alone have submitted enough bids that would exceed the offering.

Also on Thursday, Washington is reportedly seeking ways to reduce financing options for Houthi rebels in Yemen in order to prevent them from further attacking commercial ships, including tankers, in the Red Sea.

This came in the wake of Houthis expanding their reach and last week hitting six vessels in the Red Sea, the Arabian Sea, and the Mediterranean Sea.