Fed Agrees To Cut Rates And Oil Jumps - But Weekly Loss Incurred Anyway

Meanwhile, geopolitical tensions and ceasefire talks all but forgotten on Friday: File Image/Pixabay 

The long-awaited announcement by U.S. Federal Reserve chair Jerome Powell that the time has come to cut interest rates caused oil on Friday to reverse a string of losses and post a 2 percent-plus gain – but not enough to prevent a weekly decline.

Brent settled up $1.80, or 2.33 percent, at $79.02 per barrel, while West Texas Intermediate settled up $1.82, or 2.49 percent, at $74.83.

Stating that a continuation of the recent cooling of the U.S.jobs market would be unwanted, Powell endorsed easing Fed policies, adding that he was confident inflation was hovering near his bank's 2 percent target: "The upside risks to inflation have diminished, and the downside risks to employment have increased; the time has come for policy to adjust."

Also said to be supporting prices was the recent drawdown of U.S. oil inventories, and on Friday Morgan Stanley said in a note that "For now, the balance in the oil market is tight, with inventories drawing approximately 1.2 million barrels per day [bpd] in the last four weeks, which we expect will continue in the balance of [the third quarter]."

For the record, Morgan Stanley said this as it lowered its global oil demand growth estimate to 1.1 million bpd for 2024, down slightly from its previous forecast of 1.2 million bpd; the downward revision was influenced partly by a slowdown in production growth from key non-OPEC countries such as the U.S. and Brazil.

However, oil's Friday gains were still not enough to prevent a decline for the week (2.4 percent for WTI and .83 percent for Brent), reflecting an overarching bearish sentiment amid supply curbs from the Organization of the Petroleum Exporting Countries (OPEC) that have been eclipsed by disappointing economic data in China and the U.S. – the most recent example of the latter being a radical downgrading of jobs figures, suggesting they were inflated during the Joe Biden presidency.

Bloomberg observed that, "In Europe, meanwhile, futures for diesel — a workhorse industrial fuel — have retreated to the lowest level in 14 months."

Helima Croft, head of global commodity strategy at RBC Capital Markets, told CNBC, "One thing that really is not factoring into oil prices right now is geopolitical risk; that has really evaporated from the market."

Indeed, on Friday, several news outlets noted that Iran's vowed and much-feared strike against Israel had not happened and may prove to be an empty threat; plus the optimism for a ceasefire agreement between Israel and Hamas seemed also to have cooled somewhat.