Oil Prices rebound from 6-month low amid Fed rate cut prospects, Red Sea ship attacks: Report

Ahram Online , Wednesday 20 Dec 2023

The attack against ships in the Red Sea and speculation regarding potential interest rate cuts by the Federal Reserve pushed oil prices higher after reaching the lowest level in six months, according to Kamco Invest’s Oil Market Monthly Report released on Wednesday.

Oil rig. AP.
Oil rig. AP.

 

Brent crude oil prices hit $73.2 per barrel on 12 December, its lowest level since June, before rising to more than $80 fueled by the concerns over the impact of the Houthi attacks against ships in the Red Sea, the report said.

The report cited the Fed maintaining the interest rates and hinting at cuts in 2024 and the decline in the USD as additional reasons behind the increase in oil prices.

An eased monetary policy instance by the Fed could mean more economic activity worldwide, pushing up demand. Also, a weaker dollar means it takes more dollars to buy the same amount of oil, as oil is priced at the greenback.

Kamco’s report noted that the November announcement of 2.2 million barrels per day (mbpd) production cuts by OPEC+ had a minimal impact on prices.

“These cuts would be implemented during Q1-2024 and gradually unwind depending on market conditions. Latest economic surveys have forecasted rate cuts starting from mid-next year and a lower chance of a recession resulting from a soft landing in economic growth,” the report said.

As for demand, the report warned that despite the optimism of OPEC regarding the improvement in demand during 2024, some reports are predicting a deceleration in demand starting from the fourth quarter of 2023 and expected to continue through 2024.

“A Bloomberg report showed that demand growth in China is expected to slow down next year as pent-up demand post the pandemic begins to fade away. A similar trend is expected to be seen in the oil demand trend in India where consumption is expected to see a much smaller growth than in 2022 and 2023. Nevertheless, Asia is expected to account for the bulk of the growth in global oil demand next year with India expected to play a crucial role in offsetting the economically challenged slowdown in China,” the report explained.

Finally, Kamco’s report referred to the decline in OPEC production for the first time in four months in November 2023, when average daily production reached 28.1 mbpd while production in the US achieved a record high at 13.1 mbpd as of the week ended 8 December 2023.

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