[HOUSTON] Oil prices dropped on Friday (Sep 19) as worries about large supplies and declining demand outweighed expectations that the year’s first interest-rate cut by the US Federal Reserve would trigger more consumption.
Brent crude futures settled at US$66.68 a barrel, down US$0.76 or 1.1 per cent. US West Texas Intermediate futures finished at US$62.68, down US$0.89 or 1.4 per cent.
Both benchmarks rose for a second consecutive week. “Oil supplies continue to remain robust and Opec is reducing its oil production cuts,” said Andrew Lipow, president of Lipow Oil Associates. “We haven’t seen an impact on Russian crude oil exports” from sanctions.
The Fed cut its policy rate by a quarter of a percentage point on Wednesday and indicated that more cuts would follow as it responded to signs of weakness in the US jobs market.
Lower borrowing costs typically boost demand for oil and push prices higher.
John Kilduff, partner with Again Capital, said future Fed rate cuts of a quarter of a percentage point would likely not boost oil markets because they would further weaken the dollar, making oil more expensive to buy.
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“The Fed will have to be more aggressive than they have been,” Kilduff said.
“We need a 50 (basis-point increase) to boost demand. The Fed’s action is not translating to growth for the crude market due to underlying market fundamentals.”
On the demand side, all energy agencies, including the US Energy Information Administration, have signalled concern about weakening demand, tempering expectations of significant near-term price upside, said Priyanka Sachdeva, an analyst at Phillip Nova.
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Lipow also saw effects on the demand side.
“The refinery turnaround season will further reduce demand,” he said.
Refineries shut production units in the spring and autumn for overhauls, called turnarounds. A higher-than-expected increase of four million barrels to US distillate stockpiles raised worries over demand in the world’s top oil consumer and pressured prices.
The latest economic data added to concerns, with the US jobs market softening while single-family homebuilding plunged to a multi-year low in August, discouraged by a glut of unsold new houses. REUTERS
