Investing.com — Oil prices rose Thursday, riding a wave of risk-off sentiment after the Federal Reserve’s outsized rate cut on Wednesday eased concerns that a slowing U.S. economy would further dent demand for crude.
At 2:06 PM ET (1906 GMT), the stock rose 1.6% to $74.80 per barrel and rose 1.8% to $71.12 per barrel.
Unemployment claims are rising less than expected
The number of Americans filing for unemployment benefits for the first time rose less than expected last week, reaching 219,000 in the week ended September 14, compared to an upwardly revised 231,000 the week before.
Economists had predicted a consensus figure of 230,000.
The figure was better than expected and has gone some way to allaying concerns about the health of the US economy, especially after the Federal Reserve began its latest rate-cutting cycle on Wednesday, cutting rates significantly for the first time since March 2020. 50 basis points to a range of 4.75% to 5%.
While lower interest rates generally bode well for economic activity, the Fed’s aggressive cuts raised some concerns about a possible slowdown in economic growth.
While Fed Chairman Jerome Powell helped allay some of these concerns, he also said that the Fed had no intention of returning to an era of ultra-low interest rates, and that the central bank’s neutral rate would likely be much higher than in has been the case in recent years. past.
His comments indicated that while rates will fall in the short term, the Fed will likely keep rates higher in the medium to long term.
US inventories are falling, but product inventories are increasing
Government data released Wednesday showed oil prices higher than expected at 1.63 million barrels.
Although the draw was much larger than expected for a 0.2 mb draw, it also involved build-in and inventories.
The buildup of product inventories led to growing concerns that U.S. fuel demand was cooling as the travel-heavy summer season drew to a close.
Looking ahead, some expect domestic crude inventories to decline further as exports accelerate again.
“We expect a significant recovery in crude oil and product exports this week. On the product side, our preliminary expectations point to gasoline (-1.5 MM BBL) and distillate (-3.7 MM BBL) declines by a built-in jet (+0.5 MM BBL),” Macquarie said in a recent note.
The crude oil shortage could boost Brent
Still, prices could be pushed up in the short term as demand may outpace supply in the fourth quarter, Citi analysts said.
A reported decision by the Organization of the Petroleum Exporting Countries and its allies to delay the start of a taper of voluntary production cuts, along with continued supply losses in Libya, is expected to contribute to an oil market deficit of around 0.4 million barrels per day in the last three months of 2024, the Citi analysts said.
They added that such a trend could provide some temporary support to Brent “in the $70 to $75 per barrel range.”
Meanwhile, the benchmark could be further boosted by a potential recovery from recently tepid demand from top oil importer China, the analysts said.
But they indicated they still anticipate “renewed price weakness” in 2025, with Brent heading towards $60 a barrel on a looming one million barrel-per-day surplus.
(Peter Nurse, Ambar Warrick contributed to this article.)