Oil Prices Decline Amid Economic Concerns Following Fed Rate Cut and Mixed Storage Report, According to Reuters

By Laila Kearney

Oil prices experienced a decline on Wednesday following a rate cut announcement from the Federal Reserve, which sparked concerns regarding the health of the U.S. economy. Investors appeared to overlook a significant drop in crude inventories, attributing it to the temporary impact of recent weather events.

Futures for November settled at $73.65 a barrel, down 5 cents, while West Texas Intermediate (WTI) crude futures for October closed at $70.91 a barrel, a decrease of 28 cents.

The Federal Reserve’s decision to cut interest rates by half a percentage point, a larger-than-expected reduction, raised worries that the central bank might be responding to a slowing job market. While interest rate cuts usually stimulate economic activity and boost energy demand, a weakening labor market can hinder overall economic growth.

In a report from the Energy Information Administration (EIA), crude inventories decreased by 1.6 million barrels to 417.5 million barrels in the week ending September 13. This figure exceeded analysts’ expectations of a 500,000-barrel decline and brought inventories down to their lowest level in a year, helping to cushion the drop in oil prices.

Despite a more supportive report from the EIA compared to earlier figures from the American Petroleum Institute, investors likely associated the inventory reduction with Hurricane Francine—an event characterized as short-lived. Bob Yawger, director of energy futures at Mizuho Bank, noted, "The challenge with a ‘Hurricane’ report is that the figures often revert in the following week’s report when oil infrastructure resumes normal operations."

Last week, gasoline and distillate inventories saw a slight increase.

Since falling below $70 on September 10—the lowest point since December 2021—Brent crude had been attempting a recovery. However, it faced resistance near the $75 mark due to weak global refinery margins, indicating sluggish demand.

Earlier in the trading session, oil prices found some support amid concerns about escalating violence in the Middle East, which could disrupt supply chains. Hezbollah accused Israel of launching attacks against their group with explosive devices in Lebanon, and vowed retaliation, while Israel’s military refrained from commenting on the incidents.

Mazen Salhab, Chief Market Strategist for MENA at BDSwiss, commented that the end of peak summer demand and a negative shift in trader sentiment were contributing factors to the price decline, although potential conflicts in the Middle East still posed risks for supply disruptions.