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Informist, Thursday, Sep 19, 2024

 

NEW DELHI – Even as crude oil prices have risen after the US Federal Reserve slashed interest rates for the first time in more than four years, the oil market is likely to focus on increasing concern over lower demand in the months to come, analysts said. 

 

"Expectations for a 50 bps (basis points) cut had grown in recent weeks, so the move was largely priced in," said Warren Patterson, head of commodities strategy at ING Group, in a note. "For oil, that means attention will likely turn back to demand worries. China has obviously been the key concern when it comes to demand, but there have also been reports of refiners in Europe cutting run rates due to poor margins."

 

The US Federal Open Market Committee cut the federal funds target range by 50 basis points to 4.75-5.00% at its September meeting, after 14 months of keeping it at an over two-decade high. The moderation in interest rates has been long awaited and comes on the back of easing inflation and a weaker labour market. Lower interest rates bode well for commodities such as oil as investments increase and loans get cheaper. 

 

Brent crude prices on the Intercontinental Exchange rose to a more than two-week high of $74.76 per barrel, following the rate-cut decision by the US Fed. Prices are, however, far below the $92-per-bbl mark hit in April as worsening demand in China has weighed on the sentiment over the last few months. The country is the world's top importer of crude oil. According to Norway-based Rystad Energy, the outlook for economic growth in China is increasingly bleak, with the Asian powerhouse unlikely to hit its economic growth targets this year. As for West Texas Intermediate crude, prices rose to a more than two-week high of $71.12 per bbl today. 

 

At the time of writing, the price of Brent crude was $74.39 per bbl, up 1% from the previous close, while that of WTI was $70.62, up 1.1%.  

 

"The weakness is primarily due to the country’s (China) economic challenges and the rapid pace of the energy transition, with electric vehicles and trucks powered by liquefied natural gas continuing to pressure gasoline and diesel consumption," said Svetlana Tretyakova, a senior analyst at Rystad Energy, in an email commentary.  

 

Additionally, for the first time since 2011, there were speculative net short positions in Brent crude contracts as of Sep 10, according to Commerzbank AG. "This resulted in a change from net long positions of 24.9 thousand contracts to net short positions of 33.7 thousand contracts within a single week. This is highly unusual and indicates extremely negative market sentiment," the German bank said in a report. 

 

Meanwhile, in its last monthly report, the International Energy Agency scaled down its forecast for growth in global oil demand in 2024 as China's consumption of crude oil continues to slow down. The agency expects oil demand in 2024 to rise by 900,000 bbl per day, down from its previous estimate of 970,000 bpd, according to its Oil Market Report for September.  

 

In an apparent effort to halt the slide in oil prices, in early September, Saudi Arabia, and the Organization of Petroleum Exporting Countries and its allies announced they would postpone by two months the start of their planned unwinding of extra voluntary production cuts. The delay gives the alliance some time to further evaluate demand prospects for next year, as well as the impact of Libya outages and its plan to phase out additional voluntary curbs of 2.2 mln bpd by the end of next year.

 

However, with supply rising faster than overall demand from non-OPEC and its allies, the organisation may be staring at a substantial surplus, even if its extra curbs were to remain in place, the Paris-based International Energy Agency said.  End

 

US$1 = 83.68 rupees

 

Reported by Sayantan Sarkar

Edited by Akul Nishant Akhoury

 

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