Oil prices edged higher on Wednesday, buoyed by a drop in U.S. crude inventories and an anticipated interest rate cut by the U.S. Federal Reserve. However, gains were tempered by the Fed’s projection of a slower pace of rate reductions moving forward. Brent crude futures closed at $73.39 per barrel, marking a 20-cent or 0.27% rise, while U.S. West Texas Intermediate (WTI) crude settled at $70.58, up 50 cents or 0.71%. Despite these increases, both benchmarks retreated from session highs, where they had climbed by over $1 a barrel earlier in the day.
The Energy Information Administration (EIA) reported a decline in U.S. crude and distillate inventories for the week ending December 13, while gasoline stocks rose. Meanwhile, total product supplied a measure reflecting demand averaged 20.8 million barrels per day, up by 662,000 barrels per day compared to the previous week. Analysts viewed these figures as signs of improving market conditions. “The market seems to have turned a corner from all the negativity we saw a couple of weeks ago, as there is more optimism about demand,” commented Phil Flynn, senior analyst at Price Futures Group.
The Federal Reserve reduced interest rates as expected but signaled caution in further adjustments. Officials indicated plans for only two additional quarter-point cuts by the end of 2025, citing stable unemployment and modest inflationary trends. This restrained outlook appeared to influence post-settlement trading, as both Brent and WTI prices slipped into negative territory. Compounding this effect, the dollar index reached a year-to-date high of 108.156 following the Fed’s announcement.
A stronger dollar typically makes dollar-denominated commodities like oil more expensive for international buyers, potentially dampening demand. Oil investors, anticipating the 25-basis-point rate cut, had focused more intently on the Fed’s outlook. “The rate cut itself was expected,” noted StoneX analyst Alex Hodes, adding that the market had been eagerly awaiting clues about the pace of future reductions.
Lower interest rates generally support economic activity and oil consumption by reducing borrowing costs, but the tempered outlook limited the bullish momentum. Despite the day’s fluctuations, market sentiment showed signs of a rebound after recent downturns. However, ongoing macroeconomic factors, including currency strength and central bank policies, continue to weigh heavily on oil price trajectories. – By MENA Newswire News Desk.