(Bloomberg) -- Oil edged lower in choppy trading as signs of weak demand outweighed rising tensions in the Middle East and the Federal Reserve’s decision to opt for a steeper 50-basis-point rate cut.
West Texas Intermediate retreated below $71 a barrel, while Brent held above $73 a barrel. Government data released Wednesday showed US gasoline demand falling further below 9 million barrels a day and jet fuel consumption ebbing for the third straight week. Futures later pared losses and even briefly edged into positive territory following the Fed’s move before fading again.
The “Fed decision is a defensive action, but one that’s been taken very well by the market,” said Rohan Reddy, head of international business development & corporate strategy at Global X Management. “Inflation-sensitive pockets of the market like oil might perceive this as demand weakness. I’d expect range-bound oil prices until the market wraps its head around the impact to demand.”
Oil had risen in the previous two sessions on supply disruptions in Libya and the US Gulf of Mexico as well as increased bets that the Fed would be more aggressive in cutting rates.
In the Middle East, Iran-backed Hezbollah accused Israel on Tuesday of orchestrating an attack in Lebanon involving exploding pagers, which left a number of people dead and wounded thousands. Lebanon was hit with a fresh wave of exploding telecommunications devices, including walkie-talkies, on Wednesday.
Still, crude remains markedly lower this quarter, reflecting China’s dour demand outlook and plans by OPEC+ to eventually restore some shuttered output. The lackluster consumption has seen some refineries in Europe reduce processing rates. Meanwhile in China, the world’s largest oil-importing nation, poor margins have led to the bankruptcy of two small plants.
“China is one of the biggest drivers of growth of oil demand,” said Rob Thummel, a portfolio manager at Tortoise Capital Advisors. “And where that’s going is the big question.”
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