Sep 19 2024: Oil prices increased on Thursday after the U.S. Federal Reserve enacted a significant interest rate cut. However, Brent crude remained near its lowest levels of the year, hovering below $75 per barrel, due to ongoing concerns about weaker global demand.
Brent crude futures for November gained 81 cents, or 1.1%, reaching $74.46 a barrel by 0750 GMT, while WTI crude futures for October also rose by 1.1%, up 75 cents to $71.66 a barrel. Both benchmarks recovered after experiencing declines in early Asian trading.
The U.S. Federal Reserve cut interest rates by half a percentage point on Wednesday. While such cuts generally stimulate economic activity and increase energy demand, the market interpreted it as a sign of potential weakness in the U.S. labor market, which could dampen economic growth.
“Although the 50 basis point cut signals challenging economic conditions ahead, bearish investors were left dissatisfied after the Fed raised its medium-term rate outlook,” ANZ analysts noted.
Weak demand from China’s slowing economy continued to apply downward pressure. China’s refinery output fell for the fifth consecutive month in August, as reported by the national statistics bureau. Additionally, China’s industrial output growth hit a five-month low, with further declines in retail sales and new home prices.
Geopolitical tensions in the Middle East also attracted market attention. Explosions involving walkie-talkies used by Hezbollah occurred on Wednesday, following similar incidents with pagers the day before. Security sources attributed the attacks to Israel’s Mossad, though Israeli officials did not comment.
Citi analysts predict a temporary counter-seasonal oil market deficit of approximately 0.4 million barrels per day (bpd), which could keep Brent crude prices in the $70 to $75 range during the next quarter. However, they anticipate renewed price declines in 2025.
“As global oil balances worsen in 2025 across most scenarios, we expect Brent to fall toward $60 per barrel,” Citi stated in a note on Thursday.
