Oil prices softened in Asian trading on Thursday, retreating after earlier climbs to two-week highs as markets reacted to the Federal Reserve’s interest rate cut and mixed signals from U.S. crude inventory data.
Crude had been trending upward this week, driven by ongoing military tensions between Russia and Ukraine, which raised concerns about potential disruptions to Russian oil output. Expectations of further Western sanctions targeting Russia’s oil sector also supported the market.
A weaker U.S. dollar earlier in the week had helped push prices higher, but the currency strengthened on Thursday, weighing on oil. By 22:01 ET (02:01 GMT), Brent crude for November delivery fell 0.5% to $67.62 per barrel, while West Texas Intermediate (WTI) futures also dropped 0.5% to $63.37 per barrel.
Even with these recent gains, oil remains significantly lower in 2025, as concerns about slowing global demand and a potential supply glut continue to pressure prices.
Fed Moves and Market Implications
On Wednesday, the Federal Reserve cut interest rates by 25 basis points, in line with expectations, and indicated that further gradual reductions are planned in the months ahead. According to CME FedWatch, traders currently see a 93% chance of an additional 25-basis-point cut in October.
While lower rates can generally support crude demand, the Fed’s comments about growing concerns over the U.S. economy have created caution in the market. Analysts suggest that a cooling labor market was the primary factor behind the rate cuts, though persistent inflation could limit the Fed’s willingness to ease further, particularly if higher trade tariffs continue to add inflationary pressure.
After the announcement, the U.S. dollar strengthened, recovering from a 3½-year low reached ahead of the rate cut, putting additional pressure on oil prices.
U.S. Inventory Data Shows Mixed Signals
The Energy Information Administration (EIA) reported a surprise 9.285 million-barrel decline in U.S. crude inventories for the week ending September 12. Gasoline stocks also fell by 2.3 million barrels, largely due to strong export activity.
However, this was partially offset by a 4 million-barrel rise in distillate inventories, reflecting softer demand for heating fuels and other oil products ahead of the winter season.
ANZ analysts noted that “a large jump in EIA’s adjustment factor also cast doubt over the validity of the (inventory) data.”
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