Oil prices climbed on Thursday, keeping the Brent benchmark above $85 a barrel, driven by optimism for potential U.S. interest rate cuts following an unexpected slowdown in inflation.

By 12:21 p.m. ET (1621 GMT), Brent crude futures rose 23 cents, or 0.3%, to $85.31 a barrel. Meanwhile, U.S. West Texas Intermediate crude futures gained 36 cents, or 0.4%, reaching $82.46 a barrel.

The latest data revealed a decline in U.S. consumer prices in June, fostering hopes that the Federal Reserve might soon reduce rates. Following the data release, traders priced in an 89% probability of a rate cut in September, up from 73% the previous day.

According to Growmark Energy analysts, lower inflation and potential interest rate cuts are likely to stimulate more economic activity.

Fed Chair Jerome Powell recognized the recent positive trends in price pressures but emphasized to lawmakers that additional data would be needed to solidify the case for rate cuts.

This data also led to a decline in the U.S. dollar index, which is expected to support oil prices, noted Gary Cunningham, director of market research at Tradition Energy. A weaker dollar typically boosts demand for dollar-denominated oil from buyers using other currencies.

Oil prices had already risen on Wednesday, breaking a three-day losing streak, after U.S. data indicated a draw in crude stocks in the world’s top oil market, along with declining inventories and strong demand for gasoline and jet fuel.

Despite the recent uptick, some analysts remain cautious about the oil demand outlook. The International Energy Agency (IEA) projected that global demand growth would slow to under a million barrels per day this year and next, primarily due to a contraction in China’s consumption. Contrarily, OPEC maintained its forecast for world demand growth at 2.25 million barrels per day (bpd) for this year and 1.85 million bpd for next year in its monthly report on Wednesday.

“There’s a notable divergence in demand forecasts between OPEC and the IEA, partly due to differing views on the pace of the global transition to cleaner fuels,” said Alex Hodes, an analyst at StoneX.

Investment Opportunity Analysis

With inflation cooling and potential interest rate cuts on the horizon, the economic landscape appears primed for increased activity. This scenario is likely to bolster demand for oil and other commodities, presenting a lucrative opportunity for investors. As oil prices stabilize above critical benchmarks, investing in energy stocks could yield significant returns.

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