Oil markets rebound on Fed’s interest rate reduction

Oil prices gained momentum on Thursday following a steep interest rate cut from the U.S. Federal Reserve, despite Brent crude oil prices remaining near their lowest levels of the year, below $75, as worries over weaker global demand persist.

Brent crude oil futures for November delivery rose 0.9 percent to $74.31 per barrel, while WTI crude oil futures for October climbed 0.8 percent to $71.49 per barrel.

Both benchmarks had earlier experienced even more significant increases, with Brent crude climbing more than $1 per barrel and WTI crude rising over $1 as well.

The Federal Reserve’s decision to lower interest rates by half a percentage point was greeted by an increase in oil prices as the market anticipated a boost in economic activity and energy demand.

However, the central bank’s cut also signaled concerns over a weakening U.S. labour market, suggesting a potential slowdown in economic growth. This development left many bearish investors dissatisfied, according to ANZ analysts, as the Fed’s medium-term outlook for rates pointed to a less favourable economic landscape than they had anticipated.

Meanwhile,  China’s industrial output growth weakened to a five-month low in August, as indicated by data from the country’s National Bureau of Statistics, and retail sales and new home prices also displayed continued decline. Furthermore, China’s refinery output suffered a fifth straight month of decline, providing further evidence of the country’s economic slowdown.

Amidst concerns over the global economy, markets were also monitoring developments in the Middle East, where several instances of unexplained explosions had taken place.

Lebanese armed group Hezbollah reported that walkie-talkies used by their members exploded on Wednesday, following a similar incident with pagers the previous day. While Lebanese security sources pointed the finger at Israel’s intelligence agency, Mossad, Israeli officials maintained their silence on the matter.

Citi analysts anticipate a counter-seasonal oil market deficit of approximately 400,000 barrels per day (bpd) in the near term, which could provide some support for Brent crude oil prices in the $70 to $75 per barrel range during the next quarter.

However, the analysts caution that this temporary price resilience may not be sustainable, as they expect global oil balances to deteriorate in the longer term, particularly in 2025.