Oil prices eased after U.S. rate cuts and falling stockpiles

Oil prices eased on Friday but were still on track to register gains for a second straight week. This positive trend was driven by a combination of factors, including a large cut in U.S. interest rates and declining global stocks. 
 
Brent futures were down 50 cents at $74.38 a barrel while U.S. WTI crude futures fell 48 cents to $71.47. Despite these slight declines, both benchmarks were up 3.7 percent and 4 percent, respectively, on the week. 
 
The recent recovery in oil prices comes after Brent fell below $69 for the first time in nearly three years on September 10th. The decision by the U.S. central bank to cut interest rates by half a percentage point on Wednesday helped boost prices by more than 1 percent on Thursday. 
 
According to UBS analyst Giovanni Staunovo, "U.S. interest cuts have supported risk sentiment, weakened the dollar, and supported crude this week." However, he also noted that it takes time until rate cuts support economic activity and oil demand growth, which may explain why crude's performance was more muted on Friday. 
 
Interest rate cuts typically boost economic activity and energy demand but can also be seen as a sign of weakness in the labor market. The Fed projected further rate cuts throughout the year, which helped reinforce expectations that the U.S. economy will avoid a downturn, as stated by ANZ Research analysts. 
 
In addition to interest rate cuts, declining U.S. crude inventories also played a role in supporting oil prices, as they fell to their lowest level in one year last week. This has created an oil market deficit of around 400,000 barrels per day (bpd), which according to Citi analysts will support Brent crude prices within the range of $70-$75 during the next quarter. 
 
Tensions in Middle East regions such as Lebanon have added further support to oil prices, with reports suggesting that Israeli spy agency Mossad might be responsible for explosions linked to Lebanese armed group Hezbollah. Walkie-talkies used by Hezbollah exploded following similar incidents involving pagers just days before, causing concerns about the potential escalation of conflicts in this region. 
 
However, not all news is positive for oil markets. China's slowing economy has weighed heavily on market sentiment, with refinery output decreasing for five consecutive months since August. This, coupled with industrial output growth hitting its lowest point in five months, adds uncertainty about future demand from one of the world's largest consumers of energy products, China. 
 
Overall, oil markets remain volatile, influenced by various geopolitical events, rising tensions, and macroeconomic indicators. While current factors are providing some short-term relief, it remains uncertain how long this upward trajectory will continue given ongoing challenges faced globally both economically and politically.