Oil Prices Rally Amid Interest Rate Cuts and Declining Stockpiles

By Shariq Khan

NEW YORK (Reuters) – Oil prices continued their recovery on Thursday, increasing by more than 1% as a significant cut in U.S. interest rates and decreasing global stockpiles helped alleviate some demand concerns arising from weak consumption in China.

Brent futures settled at $74.88 a barrel, an increase of $1.23 or 1.7%. U.S. crude rose by $1.04 or 1.5%, reaching $71.95 a barrel.

After Brent dipped below $69 for the first time in nearly three years on September 10, prices have been on the rise, with both benchmarks registering gains in five of the last seven sessions.

On Wednesday, the U.S. central bank reduced interest rates by half a percentage point. While interest rate cuts generally stimulate economic activity and energy demand, some analysts viewed this significant reduction as an indicator of a weakening U.S. labor market. Meanwhile, the Bank of England maintained interest rates at 5.0%.

Analysts at UBS noted that declining global crude stockpiles should bolster oil prices, predicting Brent could rebound above $80 in the coming months. Recent data showed U.S. crude inventories fell to a one-year low and are expected to decline further as U.S. exports recover from Hurricane Francine's disruptions.

Citi analysts mentioned a counter-seasonal oil market deficit of about 400,000 barrels per day (bpd) could sustain Brent crude prices between $70 to $75 per barrel in the next quarter.

In addition, rising tensions in the Middle East have contributed to the increase in crude prices. Tim Snyder, chief economist at Matador Economics, noted that walkie-talkies used by the Lebanese armed group Hezbollah exploded on Wednesday, following earlier explosions of pagers, with security sources blaming Israeli spy agency Mossad, although Israeli officials did not comment.

However, weak demand from China's slowing economy continues to limit oil's gains. Alex Hodes, an oil analyst at StoneX, indicated that refinery output in China slowed for the fifth consecutive month in August, with further data revealing a slowdown in industrial output growth and weak retail sales and new home prices.