Oil falls but Fed rate cut, US crude stockpiles fall to weekend highs

Oil prices fell on Friday but remained on track for a second straight week of gains, supported by a big drop in US interest rates and a drop in US stockpiles.

Brent futures were down 34 cents, or 0.45%, at $74.54 a barrel at 12:10 PM EDT. US WTI crude futures were down 1 cent, or 0.01%, at $71.94.

Signs of a slowing economy in China, a major commodity consumer, pressured prices. But for the week, both benchmarks were around 4%.

Prices have recovered since Brent fell below $69 for the first time in nearly three years on September 10.

“As the market concluded that a slowdown would be needed to justify sub-$70 levels linked to hedge funds with a record weak belief in higher crude and fuel prices, this week’s bumper would help reduce the risk of a US rate cut,” said Ole Hansen, Commodities at Saxo Bank. Head of Strategy, said.

Prices rose more than 1% on Thursday, a day after the US central bank’s decision to cut interest rates by half a percentage point.

Interest rate cuts generally boost economic activity and energy demand, but some analysts are concerned about weakness in the US labor market.

“The US interest rate cut has supported risk-on sentiment, weakened the dollar and supported crude this week,” UBS analyst Giovanni Staunovo said.

“However, it will take time until rate cuts support economic activity and oil demand growth,” he added.

The Fed projected another 50 basis points of rate cuts by the end of this year, a full percentage point cut next year and another half-percentage-point cut in 2026.

“The Fed’s decision to cut interest rates and some of the hangover from Hurricane Francine are the only two things driving the market right now,” said Tim Snyder, chief economist at Matador Economics.

U.S. About 6% of crude production and 10% of natural gas production in the Gulf of Mexico were offline after Hurricane Francine, the Bureau of Safety and Environmental Enforcement (BSEE) said in its final post-storm update on Tuesday. .

Oil prices were further supported by last week’s drop in US crude inventories to a one-year low.

A seasonal oil market deficit of around 400,000 barrels per day (bpd) will support Brent crude prices in the range of $70 to $75 a barrel, although prices may fall in 2025, Citi analysts said on Thursday.

Rising tensions in the Middle East, raising the risk of supply disruptions, further boosted the oil market. A walkie-talkie used by the Lebanese terrorist group Hezbollah exploded on Wednesday following a pager explosion the previous day.

Although US President Joe Biden told reporters at the White House on Friday that reaching a Gaza ceasefire agreement is realistic, “we have to keep it going.”

In China, refinery output slowed for a fifth straight month in August and industrial output growth hit a five-month low.

China also issued its third and likely final batch of fuel export quotas for the year, keeping volumes in line with 2023 levels.

“This move suggests that refinery margins are too weak to justify increased activity,” Alex Hodes, a StoneX analyst, said in a note on Friday.