US economic report supports oil

Brent crude oil price has gained after the US Department of Commerce released its GDP estimate for the second quarter of this year.

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The US' gross domestic product (GDP), a key indicator of demand growth and consumer spending activity, increased at an annualised rate of 3% in the April–June period, according to the US Commerce Department’s Bureau of Economic Analysis (BEA).

The oil market has reacted positively to the news as the quarterly US GDP gained after noting a 0.5% contraction in the first quarter of this year.

“The increase in real GDP in the second quarter primarily reflected a decrease in imports… and an increase in consumer spending,” the BEA said.

The GDP data for the second quarter exceeded market expectations of a 2.4% annualised rate, remarked SPI Asset Management managing partner Stephen Innes.

The data has boosted market expectations of economic progress in the US, which could in turn support demand growth for commodities like crude oil.

“[Oil] prices were also supported by data that showed resilience in the US economy,” ANZ Bank’s senior commodity strategist Daniel Hynes wrote.

US Fed unmoved

Meanwhile, the GDP report was followed by US Federal Reserve (Fed) keeping interest rates unchanged at a range between 4.25-4.50%.

Higher interest rates in the US can dampen global oil demand as it makes dollar-denominated commodities like oil costlier for holders of other currencies.

“The Fed sees no urgency to pivot,” said Innes. “Rate cut bets for September were slashed, December is now the next viable window,” he added.

In December last year, the Fed had cut its interest rate by 25 basis points. The cut was supported by the US central bank’s latest inflation reading, which is gradually approaching its 2% target, it said.

By Aparupa Mazumder

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