Oil Edges Higher After Fed Signals Possible Interest Rate Cut

Oil edged higher on Monday, solidifying gains from the previous week, after the Federal Reserve signaled a return to interest rate cuts.

Brent rose to its highest in almost three weeks, while West Texas Intermediate nudged over the $64-a-barrel mark.

On Friday, Chair Jerome Powell used his keynote speech to signal that the Fed could cut interest rates as soon as its September policy meeting. The decision gave some price support to several asset classes, including oil, on expectations that a rate cut would boost the US economy and, in turn, raise oil demand.

Even so, the same economic headwinds that might prompt the Fed to act could also weigh on US oil demand over the longer term.

“There’s anxiety about growth and performance in the economy that’s not necessarily a long-term bullish signal for oil demand,” said Edward Bell, head of research at Emirates NBD PJSC.

Oil has been trading within a narrow range for most of the month, as traders assess various factors influencing global supply.

On the one hand, the US has threatened to double a tariff on all imports from India to 50% in retaliation for its purchases of Russian oil. Though the penalty is set to take effect on Wednesday, Indian diplomats have said local processors will continue taking crude from Moscow.

On the other hand, OPEC+’s decision to resume a large portion of idled production has raised concerns about a potential oversupply, with futures now trading about 9% lower than at the start of the year.

Brent futures are now trading at a rare discount to their regional counterpart in Dubai — a shift that could heighten concerns about a growing surplus. This move, months in the making, underscores signs that supply-demand balances in the Atlantic Basin — where contracts are largely priced — are weakening relative to the Middle East, despite OPEC+ adding millions of barrels in daily output.

Trading volumes in Brent futures were lower than the daily average on Monday, with some traders off for a UK public holiday.

Prices:

• Brent for October settlement rose 0.5% to $68.08 a barrel at 2:29 p.m. in Dubai

• WTI for October delivery gained 0.6% to $64.07 a barrel