Oil holds near two-month high on rising demand prospects, possible rate cut

By Colleen Howe

BEIJING (Reuters) – Oil prices were little changed on Tuesday, holding near two-month highs hit in the previous session, on expectations of rising fuel demand from the summer travel season and possible U.S. interest rate cuts that could boost economic growth.

Brent crude futures rose 20 cents to $86.80 a barrel by 0142 GMT after gaining 1.9% in the previous session, reaching their highest closing level since April 30.

U.S. West Texas Intermediate (WTI) crude rose 13 cents to $83.51 a barrel, after gaining 2.3% to its highest level since April 26.

Gasoline demand in the United States, the world’s top oil consumer, is expected to rise as the summer travel season resumes with the Independence Day holiday this week. The American Automobile Association predicts that travel during the holiday period will be 5.2% higher than in 2023, with car travel alone 4.8% higher than a year earlier.

“This could help gasoline demand recover after a mixed first half of 2024,” ANZ analysts wrote in a note.

On the supply side, markets had expected that Hurricane Beryl could disrupt U.S. oil refining and offshore production. However, current forecasts show that the storm will likely move toward Mexico's Bay of Campeche and cause problems for oil production there.

Beryl hit the Caribbean on Monday as a Category 4 storm with warnings from the US National Hurricane Center of an “extremely dangerous situation” after jumping from a Category 1 storm in 10 hours.

Signs of slowing U.S. inflation are renewing hopes that the Federal Reserve may cut interest rates, perhaps in September.

A report released Monday showed that U.S. manufacturing activity contracted for a third straight month and prices paid by manufacturers for some inputs fell to their lowest level in six months.

The Commerce Department's report released Friday showed that U.S. inflation data was unchanged in May, which could strengthen the case for lowering U.S. interest rates, a move that would boost economic activity and demand for oil.

However, signs of lower-than-expected demand growth have limited the rise in oil prices.

Some data show that crude imports in Asia, the world's largest oil-consuming region, were lower than last year in the first half of 2024. This was mainly due to lower imports in China, the world's largest oil importer and second-largest consumer.

(Reporting by Colleen Howe, editing by Christian Schmollinger)