By Adedapo Adesanya
The main crude oil grades at the global market rallied on Thursday after a large cut in US interest rates and declining global stockpiles helped offset some of the demand concerns arising from weak consumption in China.
Brent futures settled at $74.88 a barrel after chalking up $1.23 or 1.7 per cent and the West Texas Intermediate (WTI) crude gained $1.04 or 1.5 per cent to close at $71.95 a barrel.
The US central bank cut interest rates by half a percentage point (50 basis points) on Wednesday. Interest rate cuts typically boost economic activity and energy demand, but some also saw the large cut as a sign of a weak US labour market.
The announcement pushed prices up for a short while but the rise quickly fizzled out as it sparked worry about the state of the US economy until it began to climb higher again.
This extended on Thursday with market analysts noting that 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.
In a related development, the Bank of England (BoE) on Thursday held interest rates at 5.0 per cent.
Crude inventories in the U.S., the world’s top producer, fell to a one-year low last week, government data showed on Wednesday.
There are also expectations that the decline in inventories could accelerate next week as US exports should rebound significantly from the disruptions caused by Hurricane Francine last week.
Crude prices were also being boosted by rising tensions in the Middle East after walkie-talkies used by Lebanese armed group Hezbollah exploded on Wednesday following similar explosions of pagers the previous day.
Lebanon’s health ministry said that the second wave of explosions has killed at least 20 people and wounded more than 450.
Security sources said Israeli spy agency Mossad was responsible, but Israel did not comment on the attacks.
Prices were pressured by weak demand from China’s slowing economy after refinery output in the world’s largest oil importer slowed for a fifth month in August.
China’s industrial output growth also slowed to a five-month low last month, and retail sales and new home prices weakened further.