Oil Prices Take a Hit as Fed Signals Slower Rate Cuts
The oil market took a downturn on Thursday as the U.S. Federal Reserve hinted at a slower pace of interest rate cuts in 2025, sparking concerns over economic growth and fuel demand. As a result, Brent crude futures plummeted by 29 cents to $73.10 a barrel, while U.S. West Texas Intermediate crude lost 16 cents to $70.42.
Fed’s Projections Weigh on Oil Prices
The Fed’s projections, which pointed to two quarter-point cuts in 2025, fell short of expectations, leading to a decline in oil prices. This reduction in rate cuts is expected to strengthen the dollar, making dollar-priced commodities like oil more expensive. Higher interest rates also tend to slow down economic growth, which could reduce demand for oil.
A Stronger Dollar Spells Trouble for Oil
“The longer the Fed stays on pause, the stronger the U.S. dollar,” said Harry Tchilinguirian, an expert at Onyx Capital Group. “This tends to generate headwinds for commodities like oil.” As the dollar gains strength, oil prices are likely to feel the pressure.
Chinese Refining Giant Predicts Oil Consumption Peak
Meanwhile, Chinese refining giant Sinopec expects China’s oil consumption to peak by 2027. This prediction adds to the bearish sentiment surrounding oil prices, as China is one of the world’s largest oil consumers.
Demand-Supply Balance Looks Unfavourable
According to Suvro Sarkar, DBS Bank energy sector team leader, the demand-supply balance going into 2025 looks unfavourable. “Predictions of more than 1.0 million bpd demand growth in 2025 look stretched in our opinion,” he said. Even if OPEC+ continues to withhold production, the market may still be in surplus.
Global Oil Demand Growth Disappoints
JP Morgan analysts reported that global oil demand growth for December so far was 700,000 barrels per day (bpd) less than expected. This adds to the concerns over oil demand, which has risen by 200,000 bpd less than forecast in November 2023.
U.S. Crude Stocks Fall, But Less Than Expected
Official data from the Energy Information Administration showed U.S. crude stocks fell by 934,000 barrels in the week to Dec. 13. Although the decline was less than expected, the market found support from last week’s rise in U.S. crude exports by 1.8 million bpd to 4.89 million bpd.
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