Oil prices saw modest gains on Wednesday, supported by a drop in U.S. crude inventories and an expected interest rate cut by the Federal Reserve. Brent crude settled at $73.39 per barrel, up 20 cents, or 0.27%, while U.S. West Texas Intermediate crude closed at $70.58, gaining 50 cents, or 0.71%. Despite these increases, both benchmarks retreated from earlier gains, which had exceeded $1 per barrel.
Data from the Energy Information Administration revealed a decrease in U.S. crude and distillate inventories for the week ending December 13, although gasoline stocks rose. Demand, as indicated by total product supplied, increased by 662,000 barrels per day, reaching 20.8 million barrels per day. Analysts, such as Phil Flynn from Price Futures Group, noted a shift in market sentiment, with growing optimism around demand following a period of negative sentiment.
The Federal Reserve’s decision to cut interest rates was in line with expectations. However, it indicated a slower pace of future cuts, projecting only two additional quarter-percentage-point reductions by the end of 2025. This cautious approach was driven by stable unemployment levels and limited progress on inflation. Following the announcement, both Brent and U.S. crude futures retreated slightly, and the dollar index surged to a year-to-date high, making oil more expensive in other currencies and potentially dampening demand.
While lower interest rates generally support economic growth and oil demand, the market had already priced in the anticipated 25-basis-point cut. Investors were more focused on the Fed’s future rate outlook, which led to a more muted response in the oil market.
Despite the Fed’s cautious stance, market participants remain hopeful about demand recovery, which continues to provide some support for oil prices.
Challenger Energy Group plc (LON:CEG) is a Caribbean and Atlantic margin focused oil and gas company, with a range of petroleum assets located onshore in Trinidad and Tobago, and Suriname, and offshore in the waters of The Bahamas and Uruguay.
