Oil Holds Steady As Demand Concerns Offset US Rate Cut Boost

Typically, lower borrowing costs stimulate economic activity, in turn boosting fuel consumption and supporting oil prices.

Figures released this week showed US distillate stockpiles, which include diesel and heating oil, rising by 4 million barrels.

Source : Freepik

Global crude oil prices showed little movement on Friday, with market participants weighing the supportive impact of a US interest rate cut against lingering worries over demand in the world’s largest oil-consuming nation. The stability in prices followed a weaker close in the previous session.

Brent crude futures slipped marginally by 1 cent to $67.43 a barrel around 6:30 AM, while US West Texas Intermediate (WTI) futures edged down 4 cents to $63.53, reported Reuters.

Despite the subdued trading, both benchmarks remained on track to notch a second consecutive weekly gain. The trend came in the wake of the US Federal Reserve’s decision to lower its policy rate by 25 basis points on Wednesday, its first cut this year, with policymakers signalling the likelihood of further reductions to counter labour market weakness.

Typically, lower borrowing costs stimulate economic activity, in turn boosting fuel consumption and supporting oil prices. However, those expectations were tempered by fresh supply data that reignited demand concerns.

US Inventory Build Weighs on Outlook

Figures released this week showed US distillate stockpiles, which include diesel and heating oil, rising by 4 million barrels. The increase was well above analysts’ forecasts of a 1 million barrel build, fuelling concerns over sluggish demand. The surprise surge in inventories placed additional pressure on crude markets.

"Gains in the USD and US long-end yields further undermined support for crude oil," noted IG analyst Tony Sycamore. The dollar index rose 0.43 per cent to 97.37, strengthening against both the Swiss franc and Japanese yen, making oil more expensive for holders of other currencies and weighing on demand.

Economic Data Highlights Weakness

Concerns over the US economy were compounded by disappointing indicators. Weekly jobless claims suggested a slowdown in hiring, with both demand for and supply of workers easing. Additionally, new data showed that single-family home construction fell to its lowest point in nearly two and a half years in August amid a backlog of unsold housing units.

Such signals of weakening economic momentum added to the cautious sentiment surrounding oil demand, even as monetary easing raised hopes of stronger growth.

Russia and Supply Considerations

On the supply front, Russia – the world’s second-largest crude producer after the United States in 2024 – announced a fiscal measure aimed at insulating its budget from oil price volatility and Western sanctions. The move reassured some traders concerned about potential disruptions.

Adding to that sense of stability, analysts pointed to remarks from US President Donald Trump. According to ANZ analyst Daniel Hynes, “President Trump’s comment that he preferred low prices over sanctions on Russia also eased concerns over supply disruptions.”

With global oil benchmarks steady, markets appear caught between supportive central bank actions and persistent doubts over consumption trends. While the Fed’s rate cut offers a potential boost to demand, weak US data and unexpected inventory builds underline the fragility of the recovery in energy markets. The balance of these forces is likely to determine whether crude prices can sustain their recent upward momentum.

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