The global oil market experienced a significant uptick on Wednesday following the US Federal Reserve’s announcement of an anticipated rate cut. Brent crude rose by 0.3 percent or 23 cents to $73.88 per barrel, while West Texas Intermediate (WTI) expanded by 0.1 percent or 8 cents to $70.99 a barrel.
The Federal Reserve’s decision to lower its key rate by 50 basis points marks the first such cut since the COVID-19 pandemic, signaling a shift in monetary policy. This move comes as inflation in the world’s largest economy has eased to 2.5 percent as of August, down from a peak of 9.1 percent in 2022.
Market analysts anticipate further rate cuts in the coming months, with the Federal Reserve indicating that two additional 25-basis-point reductions may be on the horizon before the end of this year. Moreover, the central bank has suggested four cuts in 2025 and two in 2026.
The taming of inflation in the US and the subsequent rate cut are expected to provide a boost to the Democratic Party ahead of the presidential elections. Lower interest rates typically stimulate economic activity and increase energy demand, factors that contribute to rising oil prices.
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The Federal Reserve also reaffirmed its commitment to achieving 2 percent inflation and maintaining maximum employment. Meanwhile, the US Energy Information Administration (EIA) reported a decline in crude inventories by 1.6 million barrels to 417.5 million barrels in the week ending September 13. This contrasts with a modest build of 800,000 barrels for the previous week.
The EIA also estimated a minor increase in gasoline inventories of 100,000 barrels and an average production of 9.7 million barrels per day during the same period. While the EIA’s report was more supportive of oil prices compared to the American Petroleum Institute’s (API) figures, investors attributed the discrepancy to the short-lived Hurricane Francine.
In addition to the Federal Reserve’s actions and inventory data, the market is closely monitoring developments in the Middle East. Hezbollah has accused Israel of attacking the militant group with explosive-laden pagers in Lebanon, a situation that could potentially escalate tensions and impact oil prices.
As the global economy continues to evolve and geopolitical risks persist, the oil market remains subject to volatility. Investors and analysts will be closely watching the Federal Reserve’s future monetary policy decisions, as well as developments in the Middle East and other regions that could influence crude oil prices.
