By Shariq Khan
NEW YORK (Reuters) – Oil prices continued their recent recovery, rising more than 1% on Thursday, as a big cut in U.S. interest rates and declining global inventories eased some of the demand concerns caused by weak consumption in China have compensated.
Brent futures settled at $74.88 a barrel, up $1.23, or 1.7%. rose $1.04, or 1.5%, to $71.95 a barrel.
Prices have recovered after Brent fell below $69 for the first time in almost three years on September 10, and both benchmarks have posted gains in five of seven sessions since.
The US central bank cut interest rates by half a percentage point on Wednesday. Rate cuts typically boost economic activity and energy demand, but some also saw the big cut as a sign of a weak U.S. labor market.
The Bank of England kept interest rates at 5.0% on Thursday.
Declining global crude inventories should support oil prices going forward, pushing Brent back above $80 in the coming months, UBS analysts said in a note to clients.
Crude oil inventories in the US, the world’s biggest producer, fell to their lowest level in a year last week, government data showed on Wednesday. [EIA/S]
The decline in inventories could accelerate next week as U.S. exports should rebound significantly from the disruptions caused by Hurricane Francine last week, Macquarie strategists told clients.
A counterseasonal oil market deficit of around 400,000 barrels per day (bpd) will support prices in the $70 to $75 per barrel range next quarter, Citi analysts said.
Crude oil prices were also boosted by rising tensions in the Middle East, said Tim Snyder, chief economist at Matador Economics.
Walkie-talkies used by the Lebanese armed group Hezbollah exploded on Wednesday after similar pager explosions the day before. Security sources said the Israeli spy agency Mossad was responsible, but Israeli officials did not comment on the attacks.
Weak demand from China’s slowing economy limited oil gains, said Alex Hodes, oil analyst at brokerage StoneX.
Refinery output in China slowed for a fifth month in August, statistics bureau data showed over the weekend. Industrial production growth in China also slowed last month to the lowest level in five months, and retail sales and new home prices weakened further.
