Oil Prices Steady as Fed’s Policy Signals Cast a Shadow on Demand Outlook

Oil prices remained relatively flat on Thursday, recovering from earlier losses but still trading below Wednesday’s close. Brent crude futures edged down 3 cents to $73.36 per barrel, while U.S. West Texas Intermediate crude slipped 2 cents to $70.56 per barrel by mid-morning trading in London.

Fed Signals Slower Rate Cuts in 2025, Strengthens Dollar
The U.S. Federal Reserve’s decision to slow the pace of interest rate cuts in 2025 weighed on oil markets. While the Fed cut rates by 25 basis points as expected, it reduced its projections for rate cuts in 2025 to two quarter-point reductions, down from its earlier projection of four.

A stronger dollar, stemming from the Fed’s cautious stance, makes dollar-denominated commodities like oil more expensive for international buyers, potentially dampening demand. Additionally, slower rate cuts could restrain economic growth, further pressuring global fuel demand.

Mixed Demand Signals and Inventory Data
Oil markets faced mixed signals on demand. While U.S. crude stocks fell by 934,000 barrels in the week ending December 13, the drawdown was smaller than the expected 1.6 million barrels forecasted by analysts.

On the positive side, U.S. crude exports surged by 1.8 million barrels per day (bpd) to 4.89 million bpd last week, offering some support to prices. However, global demand growth continues to underwhelm. JP Morgan analysts noted December’s oil demand growth has so far been 700,000 bpd below their expectations, with 2023 demand up only 200,000 bpd less than previously forecasted.

Outlook
Oil prices are likely to remain under pressure as markets digest the Fed’s cautious outlook, coupled with ongoing concerns about demand growth. While strong export figures provide a near-term boost, weaker-than-expected global consumption growth and a strong dollar are key headwinds for the market heading into 2025.

Market participants will keep a close eye on any further signals from central banks, as well as updated demand and inventory data, to gauge the direction of oil prices in the weeks ahead.