Brent crude has risen to $74/b following the Federal Reserve's key rate increase.
Weekly analysis of the oil market
Last week, the oil market gained some support and optimism after the US Federal Reserve decided to reduce its key interest rate. However, the growth potential remains constrained unless the geopolitical climate worsens, especially due to the subdued demand in China and the US, which impedes a sustainable price recovery.
On average, ICE Brent futures for October delivery increased by $2.8/b (4.0%) to $73.9/b, and WTI prices went up by $3.3/b (4.9%) to $71.2/b. Economists surveyed by Bloomberg on September 20 have revised the fourth quarter Brent oil price forecast down to $81.0/b (a decrease of $1/b) and to $80.0/b for the first quarter of 2025.
In the futures markets, fund managers have adjusted their oil positions upward after hitting record lows. Bullish bets on Brent and WTI have increased by a total of 37,224 net long positions, reaching 89,509, based on weekly data from ICE Futures Europe and the CFTC. Conversely, in the petroleum products markets, net bearish positions in diesel have hit a record high of 45,437 lots, the most since 2006, as per CFTC data. In a similar trend, bearish positions in diesel surged to 72,683 lots, the highest in over a decade, according to ICE Futures Europe, signaling concerns over a potential global oil demand deceleration.
The Federal Reserve's interest rate cuts: the start of a new economic cycle?
The Federal Reserve's decision to lower its benchmark interest rate by 50 basis points for the first time in four years, reducing rates to 4.75-5%, was largely welcomed by the market. The S&P 500 surged 1.7% to a record high, and gold prices reached a new peak at $2,609 per ounce. This unexpected cut, which was double the anticipated 25 basis points, is seen as "bold and preemptive." However, some view it as an indication of the Federal Reserve's concern over the state of the U.S. economy. This substantial reduction at the cycle's outset, along with explicit signals of further cuts in the future, is expected to stabilize the U.S. economy. Meanwhile, the European Commission is formulating various proposals to enhance the labor market's quality.
The Federal Reserve's decision resulted in a predictable effect on the dollar, causing a modest depreciation. The average weekly value of the dollar decreased from 0.7% to 100.7%, marking its lowest point since July 2023. Should this downward trend of the dollar continue, it may stimulate international crude oil demand, as it becomes less costly for foreign countries, potentially leading to an increase in gross revenues.
In the USA, crude oil stocks are declining, and there is also a decrease in gasoline demand.
In the USA, crude oil inventories have declined, with commercial crude oil stocks falling by 1.6 million barrels, now nearing the levels seen at the end of last year and 4% below the five-year average. In contrast, crude oil stocks at Cushing, a key hub for futures contracts, dropped by 2 million barrels to 22.7 million barrels, the lowest in five years. This reduction in crude inventories was bolstered by a 1.8% rise in net exports and a decrease in crude production to 13.2 million barrels per day. Refinery utilization also decreased to 91.2%, as several facilities scaled back operations due to Hurricane Francine. Additionally, some refineries have brought forward their maintenance schedules due to the low profit margins on gasoline and diesel in the U.S. Meanwhile, inventories of petroleum products saw a slight increase, with gasoline stocks in line with the five-year average, whereas diesel stocks are still 7% below the average.
The average demand for gasoline over four weeks continues to decline, staying below 9 million barrels per day for the second consecutive week. The International Energy Agency (IEA) notes that in the US, despite a record number of kilometers driven this summer, improved efficiency standards, the increase of electric vehicles, and teleworking have reshaped the relationship between economic growth, distance traveled, and fuel consumption.
Europe: Strong increase in gasoline stocks.
In Europe, the Amsterdam-Rotterdam-Antwerp (ARA) hub reported a 2% rise in petroleum product inventories, marked by a notable 8% surge in gasoline stocks, whereas diesel stocks stayed relatively stable with a slight 0.5% increase. The boost in gasoline reserves can be attributed to reduced exports to the United States and West Africa. Nonetheless, gasoline stocks are still 15% under the five-year average, while diesel reserves have hit their peak since February 2023, surpassing the five-year average by 14%.
Oil prices have mirrored the rising trend of crude, with gasoline prices increasing by 5% and diesel by 2% over the week. Concurrently, the average refining margin in Europe (Brent FCC) rose by 7% to $4.7/b, which is 9% lower than the five-year average of $5.0/b.
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