Oil futures: Muted oil price reaction to 50bp Fed rate cut

Quantum Commodity Intelligence – Crude oil futures were slightly lower Wednesday as investors gave a muted reaction after the US Federal Reserve announced a 50 basis point cut in its key interest rate in a bid to boost the economy.

Front-month Nov24 ICE Brent futures were trading at $73.30/b (1850 GMT), compared to Tuesday's settle of $73.70/b, but up from the day's low of $72.31/b after positive inventory data from the EIA.

At the same time Oct24 NYMEX WTI was trading at $70.60/b versus Tuesday's settle of $71.19/b, while the more liquid Nov24 contract was trading at $69.57/b.

Brent briefly touched $74/b but the modest uplift from the day's lows suggested that the 50bp cut had been largely priced in prior to the 1430 Eastern Time FOMC announcement.

While a minimum 25 basis point reduction in interest rates was viewed as a certainty, expectations had been swayed in recent days towards a 50bp reduction in a bid to stimulate the economy.

Fed Chair Jerome Powell recently signalled the central bank is ready to reduce its benchmark rate, noting in comments last month that "the time has come" for the Fed to adjust its monetary policy after inflation dipped below 3% on an annual basis.

This helped to lift sentiment for the larger rate cut at the start of the week, although analysts remained torn right up until the announcement.

Disruptions

Oil prices had wobbled slightly after the latest American Petroleum Institute report revealed a 1.96 million barrel increase in crude stockpiles, along with 2.3 barrel builds in both gasoline and distillate inventories.

However, this was reversed after EIA data revealed a drop in crude inventories, including the Cushing storage hub tumbling to 12-month lows.

Benchmarks initially found support this week from continued disruptions in Libya and offshore US, but in the latter case, around 90% of the oil has now been restored.

The Bureau of Safety and Environmental Enforcement (BSEE) said late Tuesday that just 9.6% of crude production remained offline, compared to over 40% shut-in at the peak when Hurricane Francine made landfall.

Otherwise, tensions ratcheted up in the Middle East after what was believed to be a coordinated Israeli attack targeting Hezbollah operatives via hand-held pagers, which the group has vowed to avenge.