WTI steadies near $76 as firm Fed rate-cut bets cushion downside

• The Oil price finds an interim cushion near $76.00 after correcting from a fresh three-week high near $78.80.
• Firm Fed interest-rate cut prospects have supported the downside in the Oil price.
• Weak demand for stimulus in China has prompted fears of global demand concerns.

West Texas Intermediate (WTI), futures on NYMEX, discover support near $75.70 in Thursday’s European session after correcting from a fresh three-week high of $78.78 in last two trading sessions. The Oil price is expected to remain sideways as the downside is being supported by the uncertainty over Middle East conflicts and overwhelmed expectations of market participants that the Federal Reserve (Fed) will start reducing interest rates from the September meeting. While growing uncertainty of global Oil demand has sealed the upside.

Investors have been anxious as Iran continues to prepare to retaliate for the assassination of the Hamas leader by an Israeli air strike in Tehran.

Meanwhile, investors see Fed’s interest-rate cut in September as certain as price pressures remain on path that leads to Fed’s target of 2%. However, traders are split about the size with which the Fed will reduce its key borrowing rates. Lower interest rates by the Fed bode well for the Oil price as higher liquidity outflow results in an improvement in economic activity and fuel consumption.

Investors’ confidence that the Fed will cut interest rates from September was prompted by moderate growth in the United States (US) Consumer Price Index (CPI) data for July, released on Wednesday. The CPI report showed that annual core inflation, which excludes volatile food and energy prices, decelerated expectedly to 3.2%. The headline inflation surprisingly slowed to 2.9%, the lowest level seen in more than three years.

In the Asian region, deepening concerns over China’s recovery has prompted uncertainty over global demand. The data on Tuesday from the People’s Bank of China (PBoC) showed that July new bank loans plunged to a 15-year low, suggested weak demand in the domestic market. It is worth noting that China is the largest importer of Oil in the world and poor demand conditions in the economy weigh heavily on the Oil price.