Crude oil sizzles on US Fed rate cut: Brent nears $74 on six-day rise, WTI rebounds on demand optimism

Oil prices extended their recent rally, rising more than 1% on Thursday as a big cut in U.S. interest rates and declining global inventories helped offset some of the demand concerns stemming from weak consumption in China.

Brent crude futures settled at $74.88 a barrel, up $1.23, or 1.7%. U.S. crude rose $1.04, or 1.5%, to $71.95 a barrel.

Prices have been recovering after Brent fell below $69 for the first time in nearly three years on Sept. 10, with both benchmarks posting gains in five of the seven sessions since then.

The U.S. central bank on Wednesday cut interest rates by half a percentage point. Interest rate cuts typically boost economic activity and energy demand, but the big cut was also seen by some as a sign of a weak U.S. labor market.

The Bank of England kept interest rates at 5.0% on Thursday.

Unmesh Kulkarni, CEO & Senior Advisor, Julius Baer India: “Oil: We are neutral on oil. Oil demand is expected to stagnate in the Western world and China, while on the other hand, production is expanding on the back of profitable operations. Oil-producing nations are likely to eventually phase out their curbs as competition for market shares intensifies. Geopolitically-driven price spikes are typically short-lived, and in the absence of an extreme flare-up of geopolitical conditions, the current downward trend in oil prices could extend for a bit longer.”

Dwindling global crude stockpiles should support oil prices going forward, pushing Brent back above $80 in the coming months, UBS analysts said in a note to clients.

Crude inventories in the United States, the world’s top producer, fell to a one-year low last week, government data showed on Wednesday.

Inventory drawdowns could accelerate next week as U.S. exports are expected to recover significantly from the disruptions caused by Hurricane Francine last week, Macquarie strategists told clients.

A counter-seasonal oil market deficit of around 400,000 barrels per day (bpd) will support Brent crude prices in the $70-$75 per barrel range over the next quarter, Citi analysts said.

Crude 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, following similar pager explosions the day before. Security sources said Israel’s Mossad spy agency was responsible, but Israeli officials have not commented on the attacks.

Weak demand stemming from China’s economic slowdown was limiting oil’s gains, said Alex Hodes, an oil analyst at brokerage StoneX.

China’s refinery output slowed for a fifth month in August, statistics bureau data showed over the weekend. China’s industrial output growth also slowed to a five-month low last month, and retail sales and new home prices weakened further.