Oil Prices Rise Over 1% Amid US Rate Cut and Falling Crude Inventories

By Shariq Khan

NEW YORK – Oil prices continued their recent upward trend, increasing by more than 1% on Thursday. A significant reduction in U.S. interest rates, coupled with declining global stockpiles, helped mitigate some of the concerns regarding demand due to weak consumption in China.

Brent futures closed at $74.88 per barrel, climbing $1.23 or 1.7%. Meanwhile, U.S. crude rose $1.04 or 1.5%, reaching $71.95 per barrel. Prices have been recovering since Brent fell below $69 for the first time in nearly three years on September 10, with both benchmarks recording gains in five of the seven sessions since that point.

On Wednesday, the U.S. central bank announced a half-percentage point cut in interest rates. Generally, such cuts are expected to stimulate economic activity and increase energy demand; however, some interpret the drastic reduction as indicative of a struggling U.S. labor market.

Additionally, the Bank of England opted to maintain interest rates at 5.0% on Thursday.

Analysts from UBS believe that falling global crude stockpiles will support oil prices in the near future, projecting Brent to surpass $80 in the coming months. Reports indicate that crude inventories in the U.S., the world’s leading producer, reached a one-year low last week.

Market strategists at Macquarie suggested that the decrease in inventories could quicken next week as U.S. exports are anticipated to rebound significantly following disruptions caused by Hurricane Francine.

Citi analysts also noted a counter-seasonal oil market deficit of approximately 400,000 barrels per day, which they expect will keep prices within the $70 to $75 per barrel range in the next quarter.

Tim Snyder, chief economist at Matador Economics, pointed out that rising tensions in the Middle East are contributing to the increase in crude prices. Recent reports indicated that communications devices used by the Lebanese militant group Hezbollah exploded, leading to speculation regarding potential involvement from Israeli intelligence, although Israeli officials have remained silent on the matter.

Despite these positive indicators, weak demand stemming from China’s slowing economy is tempering oil’s gains. Data from China’s statistics bureau revealed that refinery output slowed for the fifth consecutive month in August. Furthermore, industrial output growth in China hit a five-month low, alongside a decline in retail sales and new home prices.