On Tuesday, the prices for slow oil with WTI exceeding 83 dollars a barrel and the Brent $88 after data showing a slowdown in manufacturing raised hopes for a rate cut.
In particular the West Texas Intermediate The June contract closed at $83.36 a barrel with an increase of $1.46 or 1.78%. Year to date, US crude oil is up more than 16%. The June Brent contract settled at $88.42 a barrel, up $1.42 or 1.63%. Year to date, the global benchmark is up nearly 15%.
US manufacturing activity fell to a four-month low of 49.9 in April, according to the S&P Global Flash US Composite PMI. A reading below 50 indicates activity is shrinking.
As a result, oil prices turned higher on the data, as investors see a slowdown in manufacturing activity as support for a rate cut by the US Federal Reserve this year. Lower borrowing costs usually stimulate the economy and, by extension, demand for crude oil.
Phil Flynn, senior market analyst at Price Futures Group, said renewed hopes of a rate cut “give oil a new sense of life here, especially since it’s already sold off quite a bit.”
The move up comes after WTI hit a session low earlier in the morning at $80.89 a barrel, the lowest level since late March. US oil prices also briefly dipped below their 50-day moving average at $81.22 a barrel for the first time since early February.
US oil prices are still below this year’s high of $87.62, when traders raised prices on fears of a war between Iran and Israel. Those concerns have been largely allayed as Iran and Israel have said they are not interested in a wider war after trading titanium-for-titanium strikes earlier this month.
The “farce” with the sanctions on Iran
The oil market has also largely dismissed the threat of additional sanctions against Iranian oil.
The House of Representatives approved legislation over the weekend that would expand sanctions against Iran’s oil exports to include foreign ports, ships and refineries that knowingly process crude from the Islamic Republic. The Senate could vote on the bill as early as this week.
Under the terms of the legislation, President Joe Biden would implement the sanctions within 180 days of the bill’s passage, but has the power to waive the sanctions if he determines it is in the interest of US national security.
“This bill significantly increases sanctions on Iran, increases enforcement mechanisms,” Helima Croft, commodities strategist told CNBC on Monday.
The White House will face a “difficult choice” this summer about whether to impose the sanctions or issue waivers amid concerns about a tight oil market, Croft said. The sanctions, if fully implemented, could contribute to higher gas prices.
“Biden is not going to pull the trigger before the election because he can’t afford to have gas prices go up before the election,” Flynn said. “It’s kind of a hoax.”
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