Oil prices dip as Fed hints at delayed rate cuts

Indications of healthy fuel demand, supply concerns could revive prices

LONDON:

Oil prices fell more than 2% on Friday and were on track for a weekly decline after the US central bank indicated that interest rate cuts could be delayed by at least two more months.

Brent crude futures were down $1.89, or 2.3%, at $81.78 a barrel at 1700 GMT, and US West Texas Intermediate crude futures were down $1.88, or 2.4%, to $76.73.

For the week, Brent is set to decline about 2% and the US benchmark is on track to fall about 3%. However, indications of healthy fuel demand and supply concerns could revive prices in the coming days.

US Federal Reserve policymakers should delay interest rate cuts by at least another couple of months, Fed Governor Christopher Waller said on Thursday, which could slow economic growth and curb oil demand.

“The entire energy complex is reacting, because if inflation begins to come back it will slow demand for energy products,” said Tim Snyder, economist at Matador Economics.

“That is not something the market wants to digest right now, especially as it is trying to figure out a direction,” he added.

Read Oil rises 1%, heads for weekly gain

Some analysts, however, say demand has remained largely healthy despite the impact of high interest rates, including in the US.

JPMorgan’s demand indicators are showing oil demand rising by 1.7 million barrels per day (bpd) month over month through February 21, its analysts said in a note on Friday.

“This compares to a 1.6 million bpd increase observed during the prior week, likely benefiting from increased travel demand in China and Europe,” the analysts said.

The Fed has held its policy rate steady in a 5.25% to 5.5% range since last July. Minutes of its meeting last month show most central bankers were worried about moving too quickly to ease policy.

Waller also pushed back on the idea that the Fed risks sending the economy into recession if it waits too long to cut rates, saying the Fed can afford to “wait a little longer”.

Published in The Express Tribune, February 24^th, 2024.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.