Oil prices on track to record weekly gain after US interest rate cut

US crude stocks, an indicator of fuel demand, decreased by 1.6 million barrels last week

Traders work on the floor at the New York Stock Exchange in New York. EPA

Oil prices were slightly lower on Friday but remained on track to record a weekly gain on a large US interest rate cut and a drop in crude stocks.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.40 per cent lower at $74.58 a barrel at 11.32am UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 0.21 per cent at $71.80 a barrel.

On Wednesday, the Fed lowered interest rates by 50 basis points, initiating its first rate-cutting cycle in four years to protect the labour market as inflation slows.

Following this decision, the Federal Open Market Committee (FOMC) reduced the benchmark lending rate to 4.75-5.00 per cent from 5.25-5.50 per cent.

Lower interest rates stimulate economic growth, boosting crude demand.

Meanwhile, US crude inventories, an indicator of fuel demand in the world’s largest economy, decreased by 1.6 million barrels in the week that ended on September 13, according to the US Energy Information Administration.

Analysts polled by Reuters were expecting a drop of 500,000 barrels.

Total petroleum stocks and distillate inventories grew by 0.1 million barrels each, the EIA data showed.

Brent has lost about 18 per cent of its value since reaching a high of $91 in April amid concerns of slowing demand in the US and China.

BMI, a Fitch company, expects Brent prices to decline to an average of $78 a barrel next year, down from $81 a barrel this year.

“While demand growth slows, a surge of non-Opec supply is coming onstream, pushing the market into surplus. Opec+ will likely intervene to limit the downside but will struggle to prevent prices from declining year-on-year,” BMI said in a research note on Thursday.

Earlier this month, the producer alliance extended voluntary oil output cuts of 2.2 million barrels per day until the end of November.

Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria and Oman will pause the scheduled increases of 180,000 bpd in October and November, Opec said at the time.

The group also said further extensions and renewed cuts were on the table, should market conditions demand them.

This month, the International Energy Agency slashed its 2024 oil demand growth forecast, citing a “rapidly slowing” Chinese economy.

Global oil demand growth is now expected to expand by 900,000 bpd this year, 70,000 bpd less than its previous estimate, the IEA said in its monthly oil market report.

China's economic rebound after the pandemic was quickly overshadowed by challenges in its real estate sector, sluggish consumer spending, and a decline in manufacturing activity.

The Asian country consumed 13.9 million bpd of crude in August, a slight increase over the previous month but still down by 6 per cent year-on-year on an apparent demand basis, according to the National Bureau of Statistics.

The August numbers represented five consecutive months of declining year-over-year oil demand and a drop of almost 1.7 million bpd from a post-pandemic peak of 15.5 million bpd in February, Emirates NBD said in a research note published on Monday.