Brent in limbo as surprise US oil stock build dampens demand growth hopes

The front-month ICE Brent contract has inched $0.03/bbl lower on the day, to trade at $72.79/bbl at 09.00 GMT.

PHOTO: Oil pumpjacks. Getty Images

Upward pressure:

The US Federal Reserve (Fed) is expected to cut key interest rates for the first time in over four years later today. Brent’s price has found some support from this as the move is expected to boost oil demand growth.

“The prospect of oil demand being stimulated by a Fed rate cut helped boost sentiment,” ANZ Bank’s senior commodity strategist Daniel Hynes remarked.

A 25-basis point cut will be ideal for oil prices, according to market analysts. Lower interest rates make dollar-denominated commodities like oil more affordable for holders of other currencies.

“The single biggest influence on crude sentiment is the US Federal Reserve’s rate cut decision [expected] later today,” VANDA Insights’ founder and analyst Vandana Hari said.

Renewed geopolitical tensions in the Middle East have provided additional support to Brent’s price. Iran-aligned Hezbollah armed group accused the Israel Defense Forces (IDF) yesterday, of plotting an attack in Lebanon, which caused several civilian casualties, Bloomberg reports.

This news has raised supply disruption concerns in the oil-rich region and “fears of an all-out war in the region,” Hynes said.

Downward pressure:

Brent’s price faced some headwinds following a surprise build in US crude stocks. Commercial crude oil inventories in the US rose by 1.96 million bbls in the week that ended 13 September, according to the American Petroleum Institute (API) estimates.

This week’s data surprised the oil market as analysts expected a decline of 100,000 bbls. A surge in US crude stocks can dampen oil demand growth and put downward pressure on Brent’s price.

“Crude traded softer after a weekly build in US crude and fuel stocks, reported by the API, helped offset sustained tensions in the Middle East,” analysts from Saxo Bank noted.

Meanwhile, oil market traders’ focus remains on Fed chairman Jerome Powell’s decision to whether cut interest rates by 25 or 50 basis points, as the latter can raise concerns of a possible recession. An aggressive rate cut could indicate underlying fears of an economic recession in the US, according to market analysts.

“The size of today’s expected rate cut, and the subsequent comments should provide the [oil] market with more insights, as it has the potential to ramp up or cool down recession fears,” Saxo Bank’s analysts added.

By Aparupa Mazumder

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