Oil Prices To Benefit From US Fed Rate Cut -- Rystad Energy

KUALA LUMPUR, Sept 18 (Bernama) -- Oil prices are set to gain support from the United States (US) Federal Reserve’s (Fed) latest rate cut, which is expected to lift global demand sentiment, according to independent energy research company, Rystad Energy.

Fed chair Jerome Powell announced the US central bank's decision to cut its key interest rate by 0.25 percentage points earlier today.

At 11.10 am, global benchmark Brent crude slid 0.26 per cent to US$67.77 per barrel. 

In a statement, Rystad Energy chief economist and global director of Market Analysis, Claudio Galimberti, said the Fed’s rate cut is bull-steepening US Treasuries, with front-end yields falling on lower policy rates while long-end yields remain high due to government deficit concerns.

“For energy, lower short-term yields weaken the dollar and lift global demand sentiment.

“For Brent in particular, today’s cut and the two expected by the end of the year will be a bullish factor, which will in part counter the bearish Organisation of the Petroleum Exporting Countries and its allies’ (OPEC+) unwinding strategy.

“On the project economics side, the Fed’s rate cut eases financing costs, giving big projects a tailwind by lowering weighted average cost of capital (WACC), though the scale of the boost depends on long-end yields and investor appetite for capital expenditure-heavy projects,” he said.

Galimberti noted that the Fed’s announcement comes against the backdrop of intense pressure from  US President Donald Trump to reduce interest rates to help further bolster the economy and cushion any potential impact of his sweeping tariffs package on economic activity.

“The rate cut of a quarter percentage point was largely in line with expectations and comes after the bank had kept it in the 4.25-4.50 per cent range since December, following a full percentage point reduction over the course of 2024.

“The cut comes as data points to jobs growth in the country faltering, as companies rein in spending to assess the long-term impact of tariffs on growth and trade flows. But the reduction comes even as inflation remains well above the bank’s two per cent target,” he said.

He said that the quarter-point cut confirms a widely anticipated attempt by the central bank to walk the fine line between maintaining close to full employment and preventing inflation from rising again, which clearly remains above the bank’s target rate.

“Beyond today’s cut, the bank is projecting at least two more cuts this year. This signals that the bank is assessing unemployment risk to be significantly higher than inflation risk,” he added.

-- BERNAMA