Oil prices climb on the Fed’s rate cut, initially dampened by worries about the U.S. economy but lifted by ongoing tensions in the Middle East.
Geopolitical uncertainty, including explosions in Lebanon, contributes to a shift in market sentiment towards bullishness.
Analysts predict a rebound in Chinese oil demand due to higher refinery run rates, which could further strengthen oil prices.
Crude oil prices were climbing on Thursday morning following the Fed’s announcement of a 0.5% cut in interest rates on Wednesday. The announcement pushed prices up for a short while on Tuesday but the rise quickly fizzled out as it sparked worry about the state of the U.S. economy.
Later in the day prices began to climb higher again, and early on Wednesday morning that trend was continuing.
“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, as quoted by Reuters.
“Crude’s buoyancy earlier this week was from expectations of a bumper Fed rate cut,” Vandana Hari, founder of Vanda Insights, told Bloomberg. “Now that it has been delivered, attention is likely to return to oil market fundamentals, which are weak.”
Pessimism about Chinese demand appears to have remained strong and even indications that the war in the Middle East could expand, potentially leading to the involvement of Iran, failed to move the benchmarks up.
Earlier in the week, the news broke that thousands of pagers used by Hezbollah fighters had exploded in Lebanon. Today, more explosive news came from the country, this time with walkie-talkies and solar equipment. The AP cited Lebanon’s health ministry as saying that this second wave of explosions has killed at least 20 people and wounded more than 450.
“We are at the start of a new phase in the war — it requires courage, determination and perseverance,” Israeli Defense Minister Yoav Gallant said, adding words of praise for the country’s army and security service, noting that “the results are very impressive,” without specifying the nature of those results.
This geopolitical uncertainty does seem to have boosted bullish sentiment, with some analysts now believing the recent bearishness in markets to have been “overdone”.
Citi, meanwhile, had good news about China, forecasting a rebound in oil prices driven by higher refinery run rates in the final quarter of the year. According to the bank, the increase in run rates could add 300,000 bpd to Chinese demand.
By Irina Slav for Oilprice.com
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