Oil prices climbed 2% on Thursday, buoyed by the Federal Reserve’s significant reduction in U.S. interest rates, allowing global benchmark Brent crude to recover from near three-year lows experienced last week.
Brent futures ascended to $75.09 a barrel by 12:19 p.m. ET (1619 GMT), an increase of $1.44, or 2%, after dipping below $69 a barrel the previous week. U.S. crude also rose by $1.53, or 2.1%, to $72.44 a barrel.
The U.S. central bank’s decision on Wednesday to slash interest rates by half a percentage point generally augments economic activity and energy demand. However, this move also underscored concerns about a weakening U.S. labor market that could decelerate the economy.
“While the 50 basis point cut hints at harsh economic headwinds ahead, bearish investors were left unsatisfied after the Fed raised the medium-term outlook for rates,” noted analysts from ANZ in a commentary.
Simultaneously, the Bank of England maintained interest rates at 5.0% on Thursday.
Tim Snyder, chief economist at Matador Economics, mentioned that escalating tensions in the Middle East were also propelling crude prices upwards.
Following explosions of walkie-talkies used by the Lebanese armed group Hezbollah on Wednesday, security sources attributed the incidents to Israeli spy agency Mossad, though Israeli officials have not commented. These tensions follow similar explosions involving pagers the day prior.
Conversely, Alex Hodes, an oil analyst at brokerage StoneX, pointed out that weak demand from China’s slowing economy was tempering oil’s gains. Refinery output in China has been in decline for five consecutive months as of August, according to data from the statistics bureau. Additionally, China’s industrial output growth has slowed to a five-month low, with retail sales and new home prices continuing to weaken.
Citi analysts project a counter-seasonal oil market deficit of around 400,000 barrels per day (bpd) which might support Brent crude prices in the $70 to $75 a barrel range during the next quarter, but they anticipate this support to be temporary.
“As 2025 global oil balances deteriorate in most scenarios, we still anticipate renewed price weakness in 2025 with Brent on a path to $60/barrel,” Citi stated in a report on Thursday.