HOUSTON: Oil prices dropped on Friday as worries about large supplies and declining demand outweighed expectations that the year’s first interest-rate cut by the U.S. Federal Reserve would trigger more consumption.
Brent crude futures were down 97 cents, or 1.44%, at $66.47 a barrel by 10:42 a.m. CDT (1542 GMT), while U.S. West Texas Intermediate futures lost 72 cents, or 1.13%, to $62.85.
Both benchmarks were still on track for a second consecutive weekly gain.
“Oil supplies continue to remain robust and OPEC is reducing its oil production cuts,” said Andrew Lipow, president of Lipow Oil Associates. “We haven’t seen an impact on Russian crude oil exports.”
The Fed cut its policy rate by a quarter of a percentage point on Wednesday and indicated that more cuts would follow as it responded to signs of weakness in the jobs market.
Lower borrowing costs typically boost demand for oil and push prices higher. “The market has been caught between conflicting signals,” said Priyanka Sachdeva, an analyst at Phillip Nova.
On the demand side, all energy agencies, including the U.S. Energy Information Administration, have signalled concern about weakening demand, tempering expectations of significant near-term price upside, Sachdeva said.
Lipow pointed out that refinery demand for crude oil would continue to fall.
“The refinery turnaround season will further reduce demand,” he said.
Refineries shut production units in the spring and fall for overhauls called turnarounds. A higher-than-expected increase of 4 million barrels to U.S. distillate stockpiles (USOILD=ECI), opens new tab raised worries over demand in the world’s top oil consumer and pressured prices.
The latest economic data also added to concerns, with the U.S. jobs market softening while single-family homebuilding plunged to a multi-year low in August, discouraged by a glut of unsold new houses.
One factor holding back oil prices is an uneven economic recovery, particularly in the U.S., said PVM Oil Associates analyst Tamas Varga.
“The corporate sector is benefiting from ongoing deregulation, whereas consumers are beginning to feel the strain of import tariffs, with both the labour and housing markets showing signs of weakness,” he said.
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