Oil Prices Surge Up as Investors Seek Bargains Ahead of Fed Rate Decision

Oil prices slightly recovered on Tuesday following a decline the previous day as investors engaged in bargain hunting. However, the gains were modest due to cautiousness surrounding upcoming policy decisions from the U.S. Federal Reserve and other central banks.

Brent crude futures increased by 16 cents, equivalent to 0.2%, reaching $72.00 per barrel by 0048 GMT. Meanwhile, U.S. West Texas Intermediate (WTI) crude stood at $67.19 per barrel, showing a marginal rise of 7 cents or 0.1%.

On Monday, both benchmarks for oil experienced a decline of approximately $3 per barrel. This drop was attributed to concerns raised by analysts regarding increasing global supplies and uncertainties surrounding demand growth. These concerns emerged just before the release of key inflation data and the conclusion of a two-day monetary policy meeting by the U.S. Federal Reserve on Wednesday.

Tatsufumi Okoshi, a senior economist at Nomura Securities, explained that while some investors sought bargains following the previous day’s substantial sell-off, others opted to hold back their positions amid speculation that Saudi Arabia might implement additional production cuts.

According to the economist, oil prices have a potential downside risk due to China’s sluggish economic recovery. He predicts that WTI crude will likely trade within the range of $62.50 to $75 per barrel during the summer but primarily below $70 per barrel. The prevailing expectation among market participants is that the U.S. Federal Reserve will maintain interest rates at their current level during its policy meeting.

The Fed’s previous interest rate increases have resulted in a stronger U.S. dollar, which, in turn, has made dollar-denominated commodities more costly for holders of other currencies. This has had a dampening effect on oil prices.

It is anticipated that the European Central Bank (ECB) will increase interest rates by a quarter percentage point on Thursday to address persistent inflationary pressures. However, the Bank of Japan, which will announce its plan on Friday, is expected to maintain its current ultra-loose monetary policy.

Last week, China’s disappointing economic data raised concerns about demand growth in the largest crude oil-importing nation globally. These concerns offset the price boost resulting from Saudi Arabia’s commitment to reducing an additional 1 million barrels per day of production in July.

Market participants are also eagerly awaiting demand outlooks from the Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA), as stated by Nomura’s Okoshi. Both organisations are scheduled to release their monthly market updates later on Tuesday.

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