Oil Sees Marginal Drop Amid Rate Cut, Supply Fears

By Adedapo Adesanya

Oil settled lower on Friday but recorded a second straight week of gains, as the market continued to weigh the outcome of the US interest rate cut and a dip in US supply.

The price of Brent went down by 39 cents or 0.52 per cent to trade at $74.49 per barrel and the US West Texas Intermediate (WTI) lost 3 cents or 0.4 per cent to quote at $71.92 per barrel.

For the week, both benchmarks settled up more than 4 per cent after Brent fell below $69 for the first time in nearly three years on September 10.

The US Federal Reserve’s significant 50-basis points rate cut has relieved pressure on global monetary policies, including that of the People’s Bank of China, which has kept its rates unchanged despite ongoing property sector challenges and a downturn in business and consumer sentiment.

The US central bank’s aggressive cut has set the stage for a more optimistic market outlook, with oil prices climbing back above $70.

Next week’s statements from members of the bank’s committee, including its Chairman Jerome Powell’s address on Thursday, are expected to influence market sentiment further.

Interest rate cuts typically boost economic activity and energy demand, but some analysts are worried about weakness in the US labour market.

The year-end anticipates further rate cuts to stimulate overall economic growth. However, bearish pressures on oil remain as demand from the Chinese economy continues to weaken.

In the world’s largest oil importer, refinery output slowed for a fifth straight month in August and industrial output growth hit a five-month low.

Meanwhile, about 6 per cent of crude production and 10 per cent of natural gas output in the US Gulf of Mexico remained offline in the aftermath of Hurricane Francine, the US Bureau of Safety and Environmental Enforcement said in its final update on the storm, which provided some support in recent weeks.

In terms of geopolitical tensions, uncertainty surrounding potential conflict escalation in the Middle East adds to oil price volatility, with concerns about supply disruptions lingering.

Israel announced on Friday that it neutralised a top Hezbollah commander and other senior figures in the Lebanese movement in an airstrike on Beirut as fears of a wider war rise.

Still, US President Joe Biden said reaching a Gaza ceasefire deal remains realistic.