Oil prices rise as Fed signals slower rate cuts in 2025

December 19, 2024 (MLN): Oil prices increased on Thursday after the U.S. Federal Reserve signalled it would slow the pace of interest rate cuts in 2025, which could hurt economic growth, reduce fuel demand and strengthen the dollar.

Brent crude futures gained $0.08, or 0.11%, to $73.47 a barrel.

West Texas Intermediate crude futures rose $0.11, or 0.16%, to $70.13.

While a rebound from earlier declines meant prices were relatively flat on the day, they remained below levels on Wednesday, when prices settled higher as U.S. crude stocks fell and the Fed cut rates by 25 basis points as expected.

Prices weakened after U.S. central bankers issued projections pointing to two quarter-point cuts in 2025 on concern over rising inflation.

That was half a point less than they had flagged in September, as Reuters reported.

"The bottom line for oil is the longer the Fed stays on pause, the stronger the U.S. dollar. This tends to generate headwinds for commodities like oil," said Harry Tchilinguirian at Onyx Capital Group. "But this news is fading as a little time goes by."

"The demand-supply balance going into 2025 continues to look unfavourable and predictions of more than 1.0 million bpd demand growth in 2025 look stretched in our opinion.

Even if OPEC+ continues to withhold production, the market may still be in surplus," said Suvro Sarkar, DBS Bank energy sector team leader.

Though demand in the first half of December rose year on year, volumes remained lower than expected by some analysts.

JP Morgan analysts said that global oil demand growth for December so far was 700,000 barrels per day (bpd) less than it had expected, adding that global demand this year has risen by 200,000 bpd less than it had forecast in November 2023.

Official data from the Energy Information Administration on Wednesday showed U.S. crude stocks fell by 934,000 barrels in the week to Dec. 13. Analysts polled by Reuters had expected a drawdown of 1.6mn barrels.

While the decline was less than expected, the market found support from last week's rise in U.S. crude exports by 1.8mn bpd to 4.89mn bpd.

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