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Oil Prices Dip but Stay on Track for Weekly Gains as Rate Cuts and Middle East Tensions Boost Market
Synopsis: Oil prices experienced a slight drop on Friday but remain on course for weekly gains, fueled by a U.S. interest rate cut and escalating tensions in the Middle East. The Federal Reserve's 50 basis point rate cut has softened the dollar, supporting crude prices, while ongoing concerns about China’s oil demand continue to limit recovery. Despite these challenges, crude futures for Brent and WTI have both seen notable increases this week.
COMMODITIES
By Ekta Mani
9/20/20242 min read
Oil prices dipped on Friday, yet continued to trend toward a weekly increase, bolstered by a significant U.S. interest rate reduction that alleviated some concerns about weakening demand.
As of 08:20 ET (12:20 GMT), Brent crude futures slipped by 0.6% to $74.47 per barrel, while West Texas Intermediate (WTI) crude futures fell 0.5% to $70.79 per barrel.
Crude Prices Climb on Rate Cut Optimism
Oil prices have experienced a notable rebound from the near three-year lows recorded earlier in September, with the majority of this recovery occurring in the past week. This was primarily driven by a softer U.S. dollar, which followed a 50 basis point interest rate cut by the Federal Reserve.
Brent crude has seen an increase of approximately 3.95% this week, while WTI futures have risen by 4.4%.
Geopolitical tensions in the Middle East have also provided additional support to oil prices. Reports of Israel allegedly destroying communication devices belonging to Hezbollah members have escalated tensions, while conflicts in Gaza persist.
A weakened dollar has further supported oil prices, following the Federal Reserve’s rate cut, which traders anticipate will spur economic growth in the upcoming quarters.
Typically, lower interest rates encourage economic activity, which subsequently boosts demand for crude oil.
Ongoing Concerns About China’s Demand
Despite the positive momentum, concerns about China—the world’s largest oil importer—continue to weigh on the crude market. Economic indicators from China have shown limited signs of recovery.
On Friday, the People’s Bank of China opted to keep its benchmark lending rates unchanged, despite growing pressure for further stimulus to support the economy.
Recent data indicated that China’s refinery output has decreased for five consecutive months, with August seeing a continued slowdown. Additionally, the nation’s oil imports have remained sluggish.
These concerns about China’s economic outlook have been a significant factor in the oil market’s earlier slump and have tempered the extent of the recent price recovery.
“While China remains a key concern for demand, reports of European refineries scaling back operations due to low profit margins have also contributed to market uncertainty,” analysts from ING remarked in a recent note.