2024/09/17

Oil prices steady ahead of Fed rate hike, Brent Crude hits $73

Oil prices have remained relatively steady as concerns about weakening demand forecasts offset the anticipated impact of an interest rate cut by the Federal Reserve. Brent crude traded near $73 a barrel, following a 1.6% increase on Monday, while West Texas Intermediate crude topped $70.

While there is uncertainty surrounding the extent of the Federal Reserve's monetary easing, many market participants anticipate a half-percentage point rate cut at the upcoming meeting. Lower interest rates are generally seen as a positive factor for energy demand.

The global economy will see a shift this week as the US begins a cycle of interest rate cuts, while central bankers from Europe to Asia determine their monetary policies.

Oil prices have declined by approximately 14% this quarter, driven by concerns about an economic slowdown in China, the world's largest crude importer, and a surplus of oil supply. Commodity trading advisor positions, which follow price trends, have approached the maximum for short-term positions, according to EA Quant Analytics, potentially easing recent selling pressure.

Warren Patterson, head of commodities strategy at ING Groep NV in Singapore, indicated that the market is uncertain about the magnitude of the upcoming interest rate cut and that investors are likely to adjust their positions in anticipation of the decision, potentially supporting oil prices. Additionally, concerns about Libyan oil supplies continue to influence the market.

The Organization of the Petroleum Exporting Countries (OPEC) has revised its forecast for global oil demand growth in 2024 downward for the second consecutive month.

In Europe, major oil refineries are reducing crude processing rates, contributing to downward pressure on oil prices. Additionally, the region is facing competition from a newly operational large refinery in Nigeria.

Time spreads for different oil futures contracts exhibit a mixed outlook. The gap between the nearest two Brent contracts has widened slightly in a backwardation, but it remains below last month's level. The most recent backwardation was 61 cents a barrel, compared to 81 cents approximately a month ago.