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Oil prices rise amid weaker dollar, tighter supply expectations

Oil prices rose on Thursday, extending gains from the previous session. This was driven by a softer-than-expected U.S. consumer inflation reading, which weakened the U.S. dollar and increased hopes of interest rate cuts.

A larger-than-anticipated draw in U.S. inventories also fueled expectations of tighter global supplies in the coming months. However, markets were cautious about the potential impact of an accident in Galveston, Texas, on oil supplies.

By 20:32 ET (00:32 GMT), Brent oil futures for July delivery rose 0.5 percent to $83.17 per barrel. Meanwhile, West Texas Intermediate (WTI) crude futures rose 0.5 percent to $78.57 per barrel.

Both contracts were trading higher for the week, as optimism over more fiscal stimulus in China also drove up prices. Beijing announced plans to begin a massive, 1 trillion yuan ($138 billion) bond issuance as soon as this week.

Potential supply disruptions from wildfires in Canada, which neared the country’s major oil sands regions, also contributed to the stronger prices.

Read more: Oil prices rise amid drop in U.S. inventories, inflation concerns

Soft U.S. CPI data boosts oil prices

The softer readings on U.S. consumer price index (CPI) inflation dented the U.S. dollar and led traders to increase bets on a September interest rate cut by the Federal Reserve.

The prospect of lower interest rates was tied to hopes that global economic activity will not cool as sharply as expected in 2024, which in turn bodes well for oil demand.

A weaker U.S. dollar also factored into stronger oil prices, as the commodity is priced in the greenback. A softer dollar encourages international demand by making oil cheaper to buy.

Shrinking U.S. inventories, potential supply disruptions

Official data on Wednesday showed that U.S. oil inventories shrank by a larger-than-expected 2.5 million barrels in the week to May 10. Gasoline and distillate stockpiles also saw unexpected draws.

This data pushed up hopes that demand was improving in the world’s biggest fuel consumer, especially as the travel-heavy summer season approaches.

Shrinking inventories could signal tighter U.S. markets, although this notion was offset by production remaining near record highs.

The accident in Galveston, Texas, which resulted in an oil spill, was also in focus for any potential supply disruptions.

Contrasting demand outlooks

While the prospect of tighter supplies boosted markets, the International Energy Agency (IEA) forecast that demand was likely to weaken in 2024. The IEA cut its demand outlook for 2024 by 140,000 barrels per day to 1.1 million bpd.

This contrasted with a forecast from the Organization of Petroleum Exporting Countries (OPEC) that oil demand will amount to 2.25 million bpd in 2024, a forecast the group maintained in a monthly report on Tuesday.

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