Oil climbs to 2-week high on Fed rate-cut signals, supply concerns

[NEW YORK] Oil prices edged up nearly 1 per cent to a two-week high on Friday (Dec 5) on increasing expectations the US Federal Reserve will cut interest rates next week, which could boost economic growth and energy demand, as well as geopolitical uncertainty that could limit supplies from Russia and Venezuela.

Brent futures rose US$0.49, or 0.8 per cent, to settle at US$63.75 per barrel, while US West Texas Intermediate (WTI) crude rose US$0.41, or 0.7 per cent, to settle at US$60.08. Those were the highest closes for both crude benchmarks since Nov 18.

For the week, Brent was up about 1 per cent and WTI was up about 3 per cent, marking a second straight weekly gain for both contracts.

Investors digested a US inflation report and recalibrated expectations for the Fed to reduce rates at its Dec 9 to 10 meeting.

US consumer spending increased moderately in September after three straight months of solid gains, suggesting a loss of momentum in the economy at the end of the third quarter as a lacklustre labour market and the rising cost of living curbed demand.

Traders have been pricing in an 87 per cent chance that the Fed will lower borrowing costs by 25 basis points next week, according to CME Group’s FedWatch Tool. Separately, top Chinese and US officials held a call on Friday to discuss trade, including ongoing efforts to implement an agreement to de-escalate their trade war.

In other trade news, US President Donald Trump said he will meet the leaders of Mexico and Canada to discuss trade issues on Friday after they gather in Washington for the 2026 World Cup draw.

Any talks that could reduce trade tensions between the US and other nations could boost economic growth and energy demand.

Investors also focused on news from Russia and Venezuela to determine whether oil supplies from the two sanctioned Opec+ members will increase or decrease in the future. The failure of US talks in Moscow to achieve any significant breakthrough over the war in Ukraine has helped to boost oil prices so far this week.

SEE ALSO

Oil settles up on expectations of Fed rate cut, Ukraine peace talks stalling

Oil settles slightly higher as Moscow peace talks fail to reach breakthrough

“The lack of progress in the Ukrainian peace talks provides a bullish backdrop, but on the other hand, resilient Opec production provides a bearish backstop. These two opposing forces make trading seemingly quiet,” said Tamas Vargas, an oil market analyst at PVM.

The Group of Seven countries and the European Union are in talks to replace a price cap on Russian oil exports with a full maritime services ban in a bid to reduce the oil revenue that helps finance Russia’s war in Ukraine, six sources familiar with the matter said.

Opec+ includes the Organization of the Petroleum Exporting Countries and allies such as Russia. Any deal that could lift sanctions on Russia, the world’s second-biggest crude producer after the US, could increase the amount of oil available to global markets.

Russian President Vladimir Putin, on his first trip to New Delhi since Russia’s 2022 invasion of Ukraine, on Friday offered India uninterrupted fuel supplies, eliciting a cautious response even as he and Indian Prime Minister Narendra Modi agreed to expand trade and defence ties.

State refiners Indian Oil Corp and Bharat Petroleum Corp have placed January orders for the loading of Russian oil from non-sanctioned suppliers due to widening discounts, trade sources with knowledge of the matter said.

A Ukrainian drone attack caused a fire at Russia’s Azov Sea port of Temryuk, the local emergencies centre said on Friday. Temryuk handles liquefied petroleum gas, oil products and petrochemicals, as well as grain and other bulk food commodities. Markets also were bracing for a potential US military incursion into Venezuela after Trump reiterated the US would start taking action to stop Venezuelan drug traffickers on land “very soon”.

Rystad Energy said in a note that such a move could put at risk Venezuela’s 1.1 million barrels per day of crude oil production, which goes mostly to China. REUTERS