Americas News
Oil Resumes Downward Trajectory As Fickle Traders Sniff At Fed's Deep Rate Cut
Oil traders who spent most of the year clamouring for the U.S. Federal Reserve to cut interest rates got what they asked for on Wednesday – and yet oil prices still declined, over fears the substantial cut reflects trouble in the jobs market.
The Fed cut interest rates by a larger than expected half a percentage point, instantly provoking speculation that the central bank sees a slowing job market – which in turn could curb economic and, by extension, demand.
The response from other analysts was subdued at best: Andy Lipow, president of Lipow Oil Associates, said, "A 50 basis point cut is slightly supportive of the oil market since it translates into a weaker dollar and stronger prices for dollar denominated commodities."
Manish Raj, managing director of Velandera Energy Partners, added, "We are not expecting fireworks in the sky following Fed rate cuts… the Fed action is unlikely to suddenly spur demand, which has otherwise been soft; nobody is hitting the gas stations just because the Fed decides to cut the rates today."
For the record, the Fed indicated they may make two additional 25 basis point rate cuts before the end of this year, in November and December, along with four cuts in 2025 and two in 2026.
Traders were also not mollified by the Energy Information Administration reporting yet another substantial inventory draw for the week ending Sept.13, this time to the tune of 1.6 million barrels to 417.5 million barrels, compared to expectations of a 500,000 barrel draw.
Reflecting the bearish mindset that even good news eventually turns bad, Bob Yawger, director of energy futures at Mizuho, dismissed news of the stockpile draw by noting that likely it was due to the outages caused by Hurricane Francine: "The problem with a hurricane report is that the numbers have a tendency to boomerang back in the opposite direction in the next week's report, after oil infrastructure comes back online."
As a result, Brent on Wednesday settled down 5 cents at $73.65 per barrel, while West Texas Intermediate settled down 28 cents to $70.91.
In other oil news on Wednesday, Bloomberg estimated that the value of Russia's crude oil exports has dropped by nearly 30 percent since the end of June due to falling international benchmark prices depressing the value of the cheaper Russian grades
The price of Urals dropped last week for a second consecutive week.
