Oil Prices Rise Amid U.S. Rate Cut, but Global Demand Concerns Linger

Oil prices increased on Thursday following a significant interest rate cut from the U.S. Federal Reserve, though persistent worries about global demand limited the extent of the gains.

Brent crude futures for November rose 36 cents, or 0.5%, to $74.01 per barrel by 0618 GMT. Similarly, WTI crude futures for October climbed 34 cents, or 0.3%, to $71.15 a barrel. Both benchmarks rebounded after initial declines in early Asian trading.

On Wednesday, the U.S. central bank’s decision to cut interest rates by half a percentage point aimed to stimulate economic activity and boost energy demand. However, the move also indicated concerns about a potentially weaker U.S. labour market, which could slow overall economic growth. While such cuts usually foster growth, the market remained cautious in response.

ANZ analysts commented, “The 50 basis point cut hints at harsh economic headwinds ahead, but bearish investors were left unsatisfied after the Fed raised the medium-term outlook for rates.”

Weaker demand from China’s slowing economy added to the concerns. Data from the national statistics bureau revealed that China’s refinery output fell for the fifth consecutive month in August. Additionally, industrial output growth in China reached a five-month low, while retail sales and new home prices also showed signs of weakening, dampening global demand expectations.

Geopolitical tensions in the Middle East further complicated the market outlook. Recent incidents involving Hezbollah, including the explosion of walkie-talkies, have drawn attention to regional instability.

Despite these challenges, analysts at Citi predict a temporary oil market deficit of approximately 0.4 million barrels per day, which could help sustain Brent crude prices between $70 and $75 per barrel in the upcoming quarter. However, they foresee potential price weakness returning by 2025, with Brent crude possibly dropping to $60 per barrel.