Oil prices dropped in Asian trading on Thursday following a larger-than-anticipated interest rate cut by the US Federal Reserve, which raised concerns about the health of the US economy. Brent crude futures for November delivery fell by 34 cents, or 0.46%, to $73.31 per barrel as of 0015 GMT. Meanwhile, West Texas Intermediate (WTI) crude futures for October slipped by 42 cents, or 0.59%, to $70.49 per barrel.
Economic Concerns Outweigh Potential Benefits of Rate Cuts
The US central bank reduced interest rates by half a percentage point on Wednesday, signaling its concerns about a slowing job market. This move, which would typically boost economic activity, instead heightened worries about the economy’s overall strength.
“Despite the 50 basis point cut suggesting severe economic challenges ahead, bearish investors were disappointed as the Fed raised its medium-term outlook for interest rates,” ANZ analysts noted in a report.
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Concerns about reduced demand from China also played a significant role in oil price movements. According to IG market analyst Tony Sycamore, “Ongoing demand issues from China overshadowed the impact of the Fed’s rate decision.”
Data from China’s statistics bureau showed that refinery output had declined for the fifth consecutive month in August. Additionally, the country’s industrial output growth hit a five-month low, while retail sales and new home prices continued to weaken.
Potential Rebound in Chinese Oil Demand Offers Some Optimism
Despite the current challenges, analysts at Citi predict a potential rebound in Chinese oil demand. They forecast an increase of 300,000 barrels per day year-on-year in the fourth quarter, driven by improved performance at independent refineries and the launch of the new Shandong Yulong Petrochemical plant. This development could provide some support to global oil demand.
Market participants are also closely monitoring geopolitical developments in the Middle East. On Wednesday, walkie-talkies used by the Lebanese armed group Hezbollah exploded, following similar incidents involving pagers the previous day. Although Israeli officials have not commented, security sources attributed the incidents to the Israeli spy agency Mossad, raising fears of further escalation in Israel’s ongoing conflict in Gaza, now in its 11th month.
