Investing
Oil drops from highest in weeks, focus on Fed rate cuts
Global Banking & Finance Review®
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By Florence Tan
SINGAPORE (Reuters) – Oil futures eased from their highest levels in weeks as traders took profit while waiting for a Federal Reserve meeting later this week for clues on further rate cuts.
Falls were limited, however, by concerns of supply disruptions in the event of more U.S. sanctions on major suppliers Russia and Iran.
Brent crude futures fell 29 cents, or 0.4%, to $74.20 a barrel by 0746 GMT after settling at their highest level since Nov. 22 on Friday.
U.S. West Texas Intermediate crude dropped 36 cents, or 0.5%, to $70.93 a barrel after reaching its highest settlement level since Nov. 7 in the previous session.
“After last week’s +6% rally, and with crude oil trading towards the top of recent range highs, we are likely seeing some light profit-taking,” IG market analyst Tony Sycamore said.
“Also it is likely a lot of trading books at banks and funds shut up shop at the end of last week and have reduced appetite for positions over the festive season.”
Oil prices were bolstered by new European Union sanctions on Russian oil last week and expectations of tighter sanctions on Iranian supply, he added.
U.S. Treasury Secretary Janet Yellen told Reuters on Friday that the U.S. is looking at further sanctions on “dark fleet” tankers and will not rule out sanctions on Chinese banks as it seeks to reduce Russia’s oil revenue and access to foreign supplies to fuel its war in Ukraine.
Fresh U.S. sanctions on entities trading Iranian oil are already driving prices of the crude sold to China to the highest in years. The incoming Trump administration is expected to ramp up pressure on Iran.
Oil prices were also supported by key central bank interest rate cuts in Canada, Europe and Switzerland last week and expectations the Fed will cut rates this week, Sycamore said.
The Fed is expected to cut interest rates by a quarter of a percentage point at its Dec. 17-18 meeting which will also provide an updated look at how much further Fed officials think they will reduce rates in 2025 and perhaps into 2026.
Lower interest rates can boost economic growth and demand for oil.
Still, forecasts of ample supply in 2025 by the International Energy Agency and CNPC’s forecasts of a decline in oil demand in China, the world’s second-largest consumer, after consumption peaked in 2023 are factors that will continue to weigh on global oil markets.
Economic data released on Monday showed China’s industrial output growth quickened slightly in November, while retail sales disappointed, keeping alive calls for Beijing to ramp up consumer-focused stimulus as policymakers brace for more U.S. trade tariffs under a second Trump administration.
“We continue to expect more policy easing in 2025, and we believe fiscal stimulus will do the heavy lifting, with increased priorities on consumption,” Goldman Sachs analysts said in a note on China.
(Reporting by Florence Tan; Editing by Stephen Coates and Himani Sarkar)
Brent crude oil is a major trading classification of crude oil originating from the North Sea. It serves as a benchmark for oil prices globally and is used to price two-thirds of the world's oil.
Federal Reserve rate cuts refer to the reduction of the federal funds rate, which is the interest rate at which banks lend to each other overnight. Lowering this rate aims to stimulate economic growth by making borrowing cheaper.
West Texas Intermediate (WTI) is a grade of crude oil used as a benchmark in oil pricing. It is sourced from the U.S. and is known for its high quality and low sulfur content.
Economic growth is an increase in the production of goods and services in an economy over a period of time. It is typically measured by the rise in Gross Domestic Product (GDP).
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