Oil surges 2% as Powell hints at rate cuts; Brent close to $80

U.S. light crude oil surged over 2% per barrel on Friday following remarks by U.S. Federal Reserve Chair Jerome Powell suggesting that the central bank was considering cutting interest rates.

Brent crude futures closed up by $1.80, or 2.33%, at $79.02 a barrel. U.S. West Texas Intermediate (WTI) crude futures also saw a gain of $1.82, or 2.49%, closing at $74.83.

“The shift by the Federal Reserve is significant,” noted Phil Flynn, senior analyst at Price Futures Group. “It’s impacting various commodities across the board.”

Both benchmarks hit their lowest levels since early January this week, after the U.S. government revised down its estimate of job growth through March, fueling concerns about a potential recession.

On Friday, Powell advocated for a more accommodating stance by the Fed, stating that further weakness in the labor market would be unwelcome. He also expressed confidence that inflation was nearing the U.S. central bank’s targeted 2% rate.

“The risks of inflation trending higher have diminished, while the risks to employment are on the rise,” Powell declared in a highly anticipated address at the Kansas City Fed’s annual economic conference in Jackson Hole, Wyoming. “It’s time for policy adjustments. The trajectory is clear, and the timing and pace of rate cuts will be contingent on incoming data, evolving conditions, and risk dynamics.”

The U.S. dollar index softened to around 101.45 ahead of Powell’s speech. A weaker dollar typically boosts demand for dollar-denominated oil among investors holding other currencies.

In a note on Friday, Morgan Stanley mentioned that a decline in oil inventories had somewhat bolstered oil prices.

“Currently, the oil market is in a delicate equilibrium, with inventories decreasing by approximately 1.2 million barrels per day over the last four weeks, a trend we anticipate will continue through the remainder of the third quarter,” the bank elaborated.

Recent indicators from China, the largest oil importer, have indicated a struggling economy and a slowdown in oil demand from refiners. Additionally, efforts to negotiate a truce in Gaza between Israel and Hamas have alleviated supply concerns and weighed on oil prices.

Delegations from the U.S. and Israel commenced a fresh series of discussions in Cairo on Thursday to address differences regarding a truce proposal.

Peace talks to halt the conflict in Gaza have alleviated fears of disruptions to crude oil supplies.

According to energy services firm Baker Hughes, U.S. energy companies reduced the number of operational oil and natural gas rigs for the second consecutive week.

The count of oil rigs remained steady at 483 this week, while gas rigs declined by one to reach 97.