Oil drops as strong supply outweighs U.S. rate cut

Brent crude futures settled at $66.68 a barrel, down 76 cents or 1.1%

Oil prices dropped 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 settled at $66.68 a barrel, down 76 cents or 1.1%.

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 from sanctions.

The U.S. central bank 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 country’s jobs market.

Lower borrowing costs typically boost demand for oil and push prices higher.

John Kilduff, partner with Again Capital, said future Fed rate cuts of a quarter of a percentage point would likely not boost oil markets because they would further weaken the dollar, making oil more expensive to buy.

The Fed will have to be more aggressive than they have been, Kilduff said. We need a 50 basis-point increase to boost demand. The Fed’s action is not translating to growth for the crude market due to underlying market fundamentals.

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, said Priyanka Sachdeva, an analyst at Phillip Nova.

Lipow also saw effects on the demand side.

The refinery turnaround season will further reduce demand, he said.