Oil Posts Weekly Gains While Further Fed Cuts Seen As Support Moving Forward

Middle East tensions also cited as propping up prices in the near future: File Image/Pixabay

Despite the chronic bearish mindset that has dominated crude trading of late, oil on Friday logged a second straight week of gains, attributed to the delayed positive reaction of investors to the U.S. Federal Reserve's interest rate cut as well as stock draws in that country.

Brent on Friday settled down 39 cents at $74.49 per barrel, while West Texas Intermediate settled down 3 cents to $71.92, the result of concern over China's slowing economy; however, the benchmarks were estimated to be up about 4 percent for the week.

Barbara Lambrecht, commodity analyst at Commerzbank, said in a note, "Oil prices were boosted from two sides this week: On the one hand, the Fed cut its key interest rate more than many had expected, raising hopes that a sharp drop in oil demand in the largest market would be avoided.

"On the other hand, the situation in the Middle East has continued to escalate, causing the geopolitical risk premium to rise; no doubt, a further deterioration of the situation could push prices even higher."

Helima Croft, head of global commodity strategy at RBC Capital Markets, told her clients, "We continue to highlight Lebanon as the main pathway to oil disruption through direct Iranian involvement in a wider regional war."

For the record, Israel on Friday disclosed that it killed a top Hezbollah commander and other senior military officials in a strike on Beirut.

As for China, it issued its third and supposedly final batch of fuel export quotas for the year, keeping volume roughly the same as that of 2023, and this caused Alex Hodes, an analyst with StoneX, to remark, "This move indicates that refinery margins are too weak to justify increased activity."

Even though the analytical community was initially indifferent to the Fed earlier this week lowering interest rates by 50 basis points, it now views further cuts as possibly the only factor that will support crude prices in the foreseeable future.

Tim Snyder, chief economist at Matador Economics, said, "The thought of another 50 to 75 basis points has markets hopeful for some degree of economic stability."

Snyder was referring to the Fed's claim that it might 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.