📈 69% of S&P 500 stocks beating the index - a historic record! Pick the best ones with AI.See top stocks

Oil ends week higher as investors take stock of Fed rate cuts

Published 2024/09/20, 02:46
Updated 2024/09/20, 21:31
© Reuters. FILE PHOTO: A pump jack drills oil crude from the Yates Oilfield in West Texas’s Permian Basin, near Iraan, Texas, U.S., March 17, 2023. REUTERS/Bing Guan/File Photo
LCO
-
CL
-

By Georgina McCartney

(Reuters) - Oil prices settled lower on Friday but recorded a second straight week of gains, garnering support from a U.S. interest rate cut and a dip in U.S. supply.

Brent futures settled down 39 cents, or 0.52%, at $74.49 a barrel. U.S. WTI crude futures settled down 3 cents, or 0.4%, to $71.92.

Signs of a slowing economy in major commodity consumer China gave prices a ceiling. But for the week, both benchmarks settled up more than 4%.

Prices have recovered after Brent fell below $69 for the first time in nearly three years on Sept. 10.

"The market concluded that a sub-$70 level combined with hedge funds holding a record weak belief in higher prices of crude and fuel products would require a recession to be justified, a risk this week's bumper U.S. rate cut helped reduce," Ole Hansen, head of commodity strategy at Saxo Bank, said.

Prices rose more than 1% on Thursday, a day after the U.S. central bank's decision to cut interest rates by half a percentage point.

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

"U.S. interest rate cuts have supported risk sentiment, weakened the dollar and supported crude this week," said Giovanni Staunovo, an analyst at UBS.

"However, it takes time until rate cuts support economic activity and oil demand growth," he added.

The Fed projected a further 50 basis points of rate cuts by the end of this year, a full percentage point of cuts next year and a further half-percentage-point reduction in 2026.

"The Fed's decision to cut interest rates and some hangover from Hurricane Francine are the only two things that are propping up the market up right now," said Tim Snyder, chief economist at Matador Economics.

"The thought of another 50 to 75 basis points has markets hopeful for some degree of economic stability," he added.

About 6% of crude production and 10% of natural gas output in the U.S. Gulf of Mexico were offline in the aftermath of Hurricane Francine, the U.S. Bureau of Safety and Environmental Enforcement said on Thursday in its final update on the storm.

Additional support for oil prices came from a decline in U.S. crude inventories to a one-year low last week. [EIA/S]

Rising tensions in the Middle East, raising the risk of supply disruption, further boosted the oil market. Israel announced on Friday it killed 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, U.S. President Joe Biden said reaching a Gaza ceasefire deal remains realistic, telling reporters: "We have to keep at it."

In China, refinery output slowed for a fifth straight month in August and industrial output growth hit a five-month low.

© Reuters. FILE PHOTO: A pump jack drills oil crude from the Yates Oilfield in West Texas’s Permian Basin, near Iraan, Texas, U.S., March 17, 2023. REUTERS/Bing Guan/File Photo

China also issued its third and likely final batch of fuel export quotas for the year, keeping volume in line with 2023 levels. "This move indicates that refinery margins are too weak to justify increased activity," StoneX Analyst Alex Hodes said in a note on Friday.

Meanwhile, oil refiners in Asia, Europe and the U.S. face a drop in profitability to multi-year lows.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.