Noor Trends News, Technical Analysis, Educational Tools and Recommendations
Oil prices slipped on Friday, yet they remained poised for a second consecutive weekly gain, buoyed by the Federal Reserve’s significant interest rate cut and shrinking global stockpiles. As of 10:04 GMT, Brent futures had declined by 50 cents (0.67%) to $74.38 a barrel, while U.S. WTI crude futures fell by 48 cents (0.65%) to $71.47.
Despite Friday’s dip, both benchmarks saw solid weekly gains, with Brent rising 3.7% and WTI climbing 4%. This marked a recovery after Brent briefly dropped below $69 per barrel on September 10, reaching a nearly three-year low.
Impact of U.S. Interest Rate Cuts
The U.S. Federal Reserve’s decision to cut interest rates by 50 basis points on Wednesday provided a significant boost to oil prices, as lower rates tend to spur economic activity and, by extension, energy demand. Thursday saw prices rise over 1% following the announcement.
However, some view the Fed’s rate cut as a sign of underlying economic weakness, particularly in the labor market. The Fed has projected additional rate cuts, forecasting another 50 basis points by the end of the year, followed by a further 100 basis points in 2025.
A continued decline in U.S. crude inventories also contributed to the rise in oil prices, with stockpiles falling to a one-year low last week. Citi analysts anticipate that a counter-seasonal oil market deficit, currently estimated at around 400,000 barrels per day, will keep Brent prices within the $70 to $75 range through the next quarter. However, they cautioned that prices could decline sharply by 2025.
Additionally, geopolitical tensions in the Middle East have provided further support for oil prices. Recent explosions involving equipment used by the Lebanese militant group Hezbollah have heightened concerns of escalating conflict, with some reports suggesting Israeli involvement, although no official confirmation has been made.
On the downside, concerns about China’s slowing economy weighed on market sentiment. Refinery output in China has now slowed for five consecutive months, while industrial output growth hit a five-month low in August, signaling weaker demand from the world’s largest oil importer.
While oil prices have shown resilience due to supply constraints and geopolitical factors, economic uncertainty, especially regarding China’s slowdown and the U.S. labor market, could cap further gains. Investors will closely monitor developments in global economic activity and central bank policies, as these will play key roles in determining energy demand in the coming months.
