By Adedapo Adesanya
Crude oil went up on Wednesday after the US Federal Reserve announced an anticipated rate cut announcement, with Brent increasing by 0.3 per cent or 23 cents to $73.88 per barrel and the West Texas Intermediate (WTI) expanding by 0.1 per cent or 8 cents to $70.99 a barrel.
The US central bank announced the rate cut at the close of its midweek meeting in a move that represents the first time the Federal Reserve has cut interest rates since the COVID-19 pandemic, going for an extra large 50-basis-point cut.
The Federal Reserve has lowered its key rate to around 4.8 per cent from the two-decade high of 5.3 per cent, while inflation in the world’s largest economy has dipped to 2.5 per cent as of August, down from 9.1 per cent in 2022.
Market analysts noted that more rate cuts are now likely on the books, with the lender indicating that they may make two additional 25-basis-point rate cuts before the end of this year, in November and December, along with four cuts in 2025 and two in 2026.
Inflation in the US is now essentially tamed, and this first rate cut since COVID is likely to slash the costs of borrowing from now until the presidential elections, in a boost for the Democrats.
Interest rate cuts typically boost economic activity and energy demand.
The Federal Reserve also said it remained committed to supporting 2 per cent inflation, along with maximum employment.
Meanwhile, crude inventories fell by 1.6 million barrels to 417.5 million barrels in the week ending September 13, the US Energy Information Administration (EIA) said.
This compared with a modest build of 800,000 barrels for the previous week that weighed on prices already depressed by demand concerns.
Meanwhile, the EIA estimated a minor gasoline (petrol) inventory increase of 100,000 barrels for the week to September 13, with production averaging 9.7 million barrels per day in the period.
These figures compared with an inventory build of a sizable 2.3 million barrels for the previous week, when production averaged 9.4 million barrels daily.
While the EIA’s report was more supportive of oil prices than Tuesday’s American Petroleum Institute (API) figures, investors said this was due to the short-lived Hurricane Francine.
The market is also looking at developments in the Middle East as Hezbollah accused Israel of attacking the militant group with explosive-laden pagers in Lebanon.
Hezbollah promised to retaliate against Israel, which has declined to comment on its involvement.