Oil prices declined in Asian trade on Thursday following signals from the U.S. Federal Reserve indicating a slowdown in the pace of interest rate cuts in 2025. This development could negatively impact economic growth and reduce demand for fuel. Brent crude futures fell by 27 cents, or 0.4%, settling at $73.12 a barrel by 0701 GMT. Meanwhile, U.S. West Texas Intermediate crude dropped 39 cents, or 0.6%, to $70.19. These declines reversed most of the gains seen in benchmark contracts the previous day, when prices had risen due to a decrease in U.S. crude stocks and the Fed’s expected interest rate cut of 25 basis points.
The weakening prices followed projections from U.S. central bankers that suggested only two quarter-point interest rate cuts would occur in 2025 due to concerns over rising inflation. This was a half-point reduction from their previous expectations in September. Kelvin Wong, a senior market analyst at OANDA, noted, “After yesterday’s FOMC meeting, the Fed has now indicated a less dovish monetary policy outlook for next year. This implies reduced trading liquidity, which may limit demand for oil.”
Lower interest rates typically decrease borrowing costs, potentially boosting economic growth and oil demand. However, according to Suvro Sarkar, who leads DBS Bank’s energy sector team, “The demand-supply balance heading into 2025 continues to look unfavorable, and our predictions of over 1.0 million barrels per day (bpd) demand growth in 2025 seem stretched. Even if OPEC+ continues to restrict production, the market could still be in surplus.”
While demand in the first half of December has shown an increase year-on-year, volumes have remained below expectations for some analysts. JP Morgan analysts reported that global oil demand growth for December thus far is 700,000 bpd lower than they had anticipated. For the year to date, global demand has risen by 200,000 bpd less than forecasted in November 2023.
Official data from the Energy Information Administration on Wednesday revealed that U.S. crude stocks fell by 934,000 barrels in the week ending December 13, which was less than analysts had expected, with a Reuters poll projecting a draw of 1.6 million barrels. Despite the smaller-than-expected drawdown, the market found support in the data, especially as U.S. crude exports increased by 1.8 million bpd last week to reach 4.89 million bpd.
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