Oil Prices Rise on Surprise Crude Draw Amid Anticipation of Fed Rate Cut

Crude oil prices edged higher today following the U.S. Energy Information Administration’s (EIA) report of an unexpected inventory draw of 1.6 million barrels for the week ending September 13. This comes after a modest inventory build of 800,000 barrels the previous week, which had put additional pressure on prices already strained by concerns over sluggish demand.

However, the focus this week is on the upcoming Federal Reserve rate decision, scheduled for 2 PM Eastern Time. Market analysts widely expect the Fed to announce its first interest rate cut in four years, a move that could support oil prices. The U.S. economy has shown resilience, and inflation rates have declined, prompting speculation about a potential rate cut. The big question is whether the Fed will opt for a modest 0.25% cut or a larger 0.5% reduction.

Lower interest rates are expected to provide a boost to oil prices by stimulating economic activity, unless ongoing concerns about weak demand growth from China overshadow this positive development.

In the latest EIA data, gasoline inventories saw a minor increase of 100,000 barrels for the week to September 13, with production averaging 9.7 million barrels per day (bpd). This compares to the previous week’s larger build of 2.3 million barrels and production levels of 9.4 million bpd.

Similarly, in middle distillates, the EIA reported a modest inventory addition of 100,000 barrels, with daily production averaging 5.1 million barrels. The previous week saw a larger inventory increase of 2.3 million barrels, with production slightly higher at 5.2 million barrels per day.

If the Federal Reserve delivers a rate cut, demand for fuels is likely to increase as the cost of borrowing drops, stimulating economic activity. Lower interest rates would reduce costs across various sectors, from energy to real estate, providing a much-needed boost to the economy.

“It’s been a long marathon — the Fed feels it’s time to lower interest rates again,” said Sara Rathner, co-host of the Smart Money podcast and personal finance expert at NerdWallet, in a CBS interview ahead of the Fed announcement. “Consumers are definitely feeling the pinch. It’s been this one-two punch of higher interest rates and inflation.”