Oil Prices Steady As Fed Rate Cut Sparks Demand Hopes

The US central bank reduced its benchmark policy rate by a quarter of a percentage point on Wednesday, its latest response to mounting signs of labour market weakness.

Policymakers also signalled that additional rate cuts are on the table before the year ends, raising expectations that lower borrowing costs could spur economic activity and energy consumption.

Source : Freepik

Oil markets remained largely unchanged on Thursday following a widely anticipated decision by the US Federal Reserve to trim interest rates, a move that could shape demand trends in the months ahead.

Brent crude futures slipped by 8 cents, or 0.12 per cent, to $67.87 a barrel in early Asian trade, while US West Texas Intermediate (WTI) eased 10 cents, or 0.16 per cent, to $63.95, reported Reuters.

Fed Signals More Cuts Ahead

The US central bank reduced its benchmark policy rate by a quarter of a percentage point on Wednesday, its latest response to mounting signs of labour market weakness. Policymakers also signalled that additional rate cuts are on the table before the year ends, raising expectations that lower borrowing costs could spur economic activity and energy consumption.

Claudio Galimberti, chief economist and global director of market analysis at Rystad Energy, observed that the Federal Reserve’s stance highlights its greater concern over unemployment compared to inflationary risks. "For Brent in particular ... the cut and the two expected by the end of the year will be a bullish factor, which will in part counter the bearish OPEC+ unwinding strategy," he said in a client note, referring to the ongoing increase in crude supply from OPEC and its allies.

Supply and Inventory Trends

Oil markets were also assessing the latest inventory data from the US Energy Information Administration (EIA). The figures showed a sharp drop in crude stockpiles last week as net imports tumbled to a record low and exports climbed to their highest level in nearly two years. This underscored the shifting trade dynamics in the world’s largest oil consumer.

However, concerns about demand resurfaced as distillate inventories, including diesel and heating oil, rose by 4 million barrels. That increase was far above market expectations of a 1 million barrel build, weighing on sentiment.

Global Demand Outlook

On the demand side, global consumption averaged 104.4 million barrels per day (bpd) up to 17 September, according to JP Morgan. That marked a year-on-year increase of 0.52 million bpd. So far in 2024, demand has grown by 0.8 million bpd, slightly below the bank’s forecast of 0.83 million bpd.

"While flight volumes in the US and China are easing as the summer travel season winds down, activity in Europe, the Middle East, and Latin America continues to grow," JP Morgan noted in its client update. The bank’s assessment suggests that despite seasonal slowdowns in key markets, broader global demand remains on a firm trajectory.

Balancing Factors in Oil Prices

Overall, traders appear to be weighing the potential demand boost from monetary easing against the headwinds of rising supplies and uneven inventory data. With Brent and WTI holding within narrow ranges, the outlook for crude prices may hinge on how effectively lower interest rates translate into stronger economic activity in the months ahead.

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