Oil prices dipped slightly on Wednesday, ending a two-day rise, despite the Federal Reserve’s decision to cut interest rates for the first time in several years. The Fed’s move to lower rates by half a percentage point was more significant than anticipated, but the oil market‘s reaction remained muted.
Andy Lipow, president of Lipow Oil Associates, explained that a 50 basis point rate cut can be beneficial for the oil market. It leads to a weaker dollar, which in turn supports higher prices for commodities priced in dollars.
Here’s a summary of the energy prices on Wednesday:
West Texas Intermediate (October contract): Closed at $70.91 per barrel, a decrease of 28 cents (0.39%). For the year, U.S. crude oil prices have dropped approximately 1%.
Brent (November contract): Closed at $73.65 per barrel, down by 5 cents (0.07%). The global benchmark has seen a decline of about 4% year to date.
RBOB Gasoline (October contract): Closed at $2.01 per gallon, up by 0.44%. Gasoline prices have fallen more than 4% so far this year.
Natural Gas (October contract): Closed at $2.284 per thousand cubic feet, down by nearly 1.72%. Gas prices have retreated about 9% year to date.
Matt Smith, lead oil analyst for the Americas at Kpler, noted that the previous sessions’ oil rally had already factored in the anticipated rate cut, which could explain the muted market response.
Concerns about an imbalance between oil supply and demand have been affecting the market this month. Both U.S. crude and the global benchmark Brent have seen a drop of about 13% in the third quarter.
In China, consumption is slowing down as electric vehicle sales increase, while OPEC+ is expected to boost production in December. Meanwhile, production in the U.S., Canada, Brazil, and Guyana remains robust.
Manish Raj, managing director of Velandera Energy Partners, stated that the Fed’s rate cut is not expected to dramatically increase demand, which has been soft. He added that the rate cut alone won’t lead to a sudden surge in gas station visits.
According to the Energy Information Administration, U.S. commercial crude stockpiles decreased by 1.6 million barrels in the week ending September 13. Gasoline inventories, however, increased by 100,000 barrels.
Geopolitical tensions in the Middle East are also on the rise, with fears of a potential conflict between Israel and the Iran-backed Hezbollah militia. An attack in Lebanon on Tuesday targeted Hezbollah members, causing explosions.