Oil prices react to Fed rate cuts

Brent’s price has found some support after the US Federal Reserve (Fed) cut its key interest rates by a massive 50 basis points.

PHOTO: US Federal Reserve headquarters in Washington DC. Getty Images

In a largely anticipated move, the US Fed lowered its key interest rate by half a percentage point for the first time since 2020, bringing the central bank’s benchmark rate to a range between 4.75% and 5.00%.

Brent’s price moved into “positive territory” for a brief period after the Fed’s rate cut announcement, ANZ Bank’s senior commodity strategist Daniel Hynes remarked.

Lower interest rates in the US can boost demand growth for dollar-denominated commodities like oil as it makes the greenback weaker against other currencies.

“The 50bp [basis point] cut from the Fed led to some brief price spikes across the commodities complex [including crude oil],” two analysts from ING Bank said.

“While oil prices saw a brief spike following the Fed's 50bp [basis point] rate cut, the market settled marginally lower on the day,” they added.

Oil market analysts previously noted that a 25-basis point cut had largely been priced in, which could support Brent's price. However, a more aggressive 50 basis point cut could signal the Fed’s concerns over significant economic weakness in the US.

“The 50bp [basis point] cut hints at harsh economic headwinds ahead,” Hynes noted. “The profile of cutting suggests a measured approach to easing and underwrites the soft economic landing outlook,” he added.

The Fed reaffirmed its commitment to bringing inflation rate below its 2% target and ensuring maximum employment.

By Aparupa Mazumder

Please get in touch with comments or additional info to news@engine.online