WASHINGTON (dpa-AFX) - Crude oil fell sharply on Friday, as following the highly anticipated interest rate cut by the US Federal Reserve on Wednesday, traders dissected the Fed's message hinting at underlying risks to the economy, stoking demand concerns.
WTI Crude Oil for October delivery was last seen trading down by $0.91 (or 1.43%) at $62.66 per barrel.
On Wednesday, after the two-day meeting of the Federal Open Market Committee, the US Federal Reserve lowered the target range for the federal funds rate by 25 basis points to 4.00% to 4.25%.
Crude oil being a dollar-denominated commodity, the lowering of borrowing costs should have increased demand for oil. However, the effect has been muted, as traders saw the rate cuts as a 'given' and focused on the central bank's new economic projections released the same day. The summary indicated that core inflation is not projected to reach the Fed's 2% target until 2028.
With this, concerns of stagflation have been reignited which is now outweighing the rate cut gains.
Data released on Wednesday by the Energy Information Administration on oil stockpiles revealed that distillate stockpiles rose by 4 million barrels indicating softening of fuel demand in the US, the biggest oil consumer globally.
In the ongoing Russia-Ukraine conflict, Ukraine has been targeting Russian oil refineries - most recently the Kirishi and Saratov refinery. Ukraine has struck a minimum of 10 refineries in Russia, this year. Supply side disruptions to Russian oil have started to surface.
Goldman Sachs reported that around 300,000 barrels per day of Russian refining capacity has been knocked offline since August. Analysts suggest that Russia might have lost one-fifth of its refining capacity.
US President Donald Trump urged the EU nations to stop buying Russian oil. Stating that Russia will end the war if oil prices drop, Trump pressured the EU and NATO member-nations to impose heavy secondary sanctions on countries buying Russian oil.
Trump pointed out that he had imposed 25% 'penalty tariffs' on India on top of the 25% reciprocal tariffs even though the US shares good ties with India.
The OPEC+ alliance decided last week to increase their collective oil production to 137,000 barrels per day from October. This is much lower than 411,000 bpd increase for June/July and 555,000 bpd for August/September time frame.
With demand looking to ease and supply growth concerns persisting, traders feel that crude oil may see a bearish trend in the short term.
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