Oil Prices Rise Amid Easing Demand Concerns Following Jumbo Fed Rate Cut

Oil prices surged on Thursday as investor confidence increased following the Federal Reserve’s substantial interest rate cut the previous day, which alleviated concerns regarding a declining U.S. economy impacting crude oil demand.

As of 2:06 p.m. ET, oil prices rose by 1.6% to $74.80 a barrel, while Brent crude increased by 1.8% to $71.12 a barrel.

### Jobless Claims Increase Less Than Expected

The latest data showed that the number of Americans filing for first-time unemployment benefits rose less than anticipated, totaling 219,000 for the week ended September 14, compared to an upwardly revised 231,000 the previous week. This figure was better than the forecasted 230,000, easing some concerns over the U.S. economy’s health, especially after the Fed initiated its new rate-cutting cycle by reducing interest rates by 50 basis points to a range of 4.75% to 5%.

While lower rates generally support economic activity, the Fed’s aggressive cut raised worries about a possible economic slowdown. Fed Chair Jerome Powell addressed these concerns but indicated that the central bank is unlikely to return to ultra-low interest rates, suggesting that the neutral rate may be higher than in previous years. His remarks implied that, while short-term rate reductions are on the table, the Fed is likely to maintain elevated rates in the medium to long term.

### U.S. Inventories Decline, But Product Stockpiles Rise

Government statistics released on Wednesday revealed a larger-than-expected draw of 1.63 million barrels in crude inventories. This draw exceeded expectations of only 200,000 barrels, but was offset by increases in gasoline and distillate inventories. The rise in product inventories raised concerns that U.S. fuel demand may be tapering off as the busy summer travel season concludes. Some analysts foresee further reductions in domestic crude stocks as exports are expected to rebound.

Analysts indicated potential decreases in gasoline and distillate inventories, alongside a build in jet fuel.

### Crude Deficit May Support Brent

Despite these concerns, analysts from Citi suggested that oil prices could experience near-term support, with demand possibly surpassing supply in the fourth quarter. The Organization of the Petroleum Exporting Countries (OPEC) and its allies are reportedly delaying the commencement of reducing voluntary output cuts, coupled with ongoing supply disruptions in Libya. They projected a market deficit of approximately 0.4 million barrels per day in the last quarter of 2024, which could provide temporary support for Brent prices within the $70 to $75 per barrel range.

Additionally, a potential rebound in demand from China, the world’s largest oil importer, could also bolster prices. However, analysts warned of a “renewed price weakness” anticipated in 2025, with forecasted Brent prices falling to around $60 per barrel due to an expected surplus of one million barrels per day.