Oil prices edged lower on Thursday as concerns about future fuel demand grew following the U.S. Federal Reserve’s signal of a slower pace for interest rate cuts in 2025. The central bank’s cautious stance dampened optimism in the market, erasing gains from earlier in the week.

Market Movements
Brent crude futures fell by 33 cents (0.45%) to $73.06 per barrel by 0107 GMT, while U.S. West Texas Intermediate (WTI) crude dropped 36 cents (0.51%) to $70.22. These declines offset Wednesday’s rally, which was driven by a decrease in U.S. crude inventories and a widely anticipated 25-basis-point interest rate cut by the Federal Reserve.

However, the Fed’s hawkish guidance on future monetary policy tempered the bullish momentum. The central bank’s December policy meeting indicated just two quarter-point rate cuts in 2025, a revision from its September projection of three to four cuts. The shift reflects ongoing concerns over persistent inflationary pressures.

Impact on Oil Demand
Lower interest rates typically encourage borrowing, economic growth, and higher energy consumption. The Fed’s cautious approach suggests a slower-than-expected economic expansion, potentially curbing oil demand in the near term.

Inventory Data Highlights
The U.S. Energy Information Administration (EIA) reported mixed inventory results for the week ending December 13. Crude stockpiles dropped by 934,000 barrels to 421 million barrels, falling short of analysts’ expectations for a 1.6-million-barrel decline. Meanwhile, distillate inventories also fell, but gasoline inventories rose, adding complexity to the supply-demand equation.

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Policy Developments in Focus
Adding to the uncertainty, the U.S. Environmental Protection Agency (EPA) approved California’s groundbreaking plan to phase out gasoline-only vehicles by 2035. The policy mandates that at least 80% of new vehicles sold by then must be fully electric. Eleven states, including New York, Massachusetts, and Oregon, have adopted similar regulations, signaling a significant shift in long-term fuel demand.

The interplay of regulatory changes, monetary policy, and market fundamentals continues to shape the outlook for global oil markets as traders monitor developments closely.