Oil Prices Sink Over 1% Despite Fed Rate Cut
Central Bank measures have not translated into stronger momentum in crude markets, given the underlying supply-demand fundamentals.
Quick overview
- Oil prices fell on Friday due to concerns over abundant supply and weakening fuel demand.
- Brent crude futures dropped to $66.73 a barrel, while West Texas Intermediate futures fell to $62.86 a barrel.
- OPEC's gradual scaling back of production cuts and steady Russian crude exports are contributing to strong supply.
- Despite the Federal Reserve's interest rate cut, analysts believe it may have limited impact on oil demand and prices.
Oil prices fell on Friday, as worries over abundant supply and weakening fuel demand outweighed expectations that the Federal Reserve’s first interest rate cut of the year could stimulate consumption.
Brent crude futures dropped 71 cents, or 1.05%, to $66.73 a barrel at 11:53 a.m. Mexico City time, while West Texas Intermediate (WTI) futures also slipped 71 cents, or 1.12%, to $62.86 a barrel. Both benchmarks, however, were still on track for their second consecutive weekly increase.
Supply remains strong. OPEC has been gradually scaling back its production cuts, and sanctions have yet to significantly impact Russian crude exports, keeping global flows steady. On the demand side, the picture is softening: all major energy agencies, including the U.S. Energy Information Administration (EIA), have highlighted concerns over slowing consumption, which is tempering expectations of any meaningful short-term price recovery.
Refinery maintenance season, when plants shut units for routine inspections during spring and autumn, is expected to further curb demand in the coming weeks.
Market Drivers and Central Bank Impact
On Wednesday, the Federal Reserve cut its benchmark interest rate by a quarter of a percentage point, its first reduction of the year, and signaled that additional easing could follow in response to signs of weakness in the U.S. labor market. Lower borrowing costs typically support oil demand and prices. Still, analysts caution that further quarter-point moves may have limited effect on energy markets, as they could simultaneously weaken the U.S. dollar, raising the cost of oil purchases for global buyers. Some argue the Fed would need to take more aggressive steps—such as a 50-basis-point cut—to meaningfully spur demand.
So far, however, the central bank’s measures have not translated into stronger momentum in crude markets, given the underlying supply-demand fundamentals. With plentiful supply and persistent questions over consumption, the path for oil prices remains capped despite monetary easing.
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