By Colleen Howe
BEIJING (Reuters) – Oil prices fell in Asian trading on Thursday after a larger-than-expected Federal Reserve interest rate cut sparked concerns about the U.S. economy.
futures for November fell 34 cents, or 0.46%, to $73.31 a barrel by 0015 GMT, while WTI crude futures for October declined to $70.49 a barrel, down 42 cents or 0.59%.
The U.S. central bank cut interest rates by half a percentage point on Wednesday, suggesting the Fed saw a slowing job market. That view appeared to outweigh the boost that interest rate cuts usually bring to economic activity.
“While the 50 basis point cut hints at harsh economic headwinds ahead, bearish investors were left unsatisfied after the Fed raised the medium-term outlook for rates,” ANZ analysts said in a note.
Weak demand from China’s slowing economy also continued to weigh.
“Ongoing demand concerns from China overshadowed the Fed’s decision,” IG market analyst Tony Sycamore said.
Refinery output in China slowed for a fifth month in August, statistics bureau data showed over the weekend.
China’s industrial output growth also slowed to a five-month low last month, and retail sales and new home prices weakened further.
However, Citi analysts said Chinese oil demand may rebound by 300,000 barrels per day year-on-year in the fourth quarter on improved independent refinery runs and the start-up of new refiner Shandong Yulong Petrochemical, offering some support to global demand.
Markets were keeping an eye on events in the Middle East after walkie-talkies used by Lebanese armed group Hezbollah exploded on Wednesday following similar explosions of pagers the previous day.
Israeli officials did not comment on the attacks, but security sources said Israeli spy agency Mossad was responsible, heightening fears of an escalation in Israel’s 11-month war in Gaza.
Analysis
The recent Federal Reserve interest rate cut has had a significant impact on oil prices in Asian trading. The cut, which was larger than expected, has raised concerns about the U.S. economy and led to a decline in oil prices. This is due to a perceived slowing job market and the Fed’s medium-term outlook for rates, which has left some investors feeling bearish.
Furthermore, weak demand from China’s slowing economy has also contributed to the decline in oil prices. Despite some potential positive indicators, such as the expected rebound in Chinese oil demand in the fourth quarter, the overall sentiment remains cautious.
Events in the Middle East have added to the uncertainty, with tensions escalating following recent explosions. This has added to concerns in the market and further impacted oil prices.
Overall, the combination of the Federal Reserve interest rate cut, China’s economic challenges, and geopolitical tensions in the Middle East have created a complex landscape for investors to navigate. It is important for individuals to stay informed and monitor these developments to make informed decisions regarding their finances and investments.