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23 April 2024

Oil prices mixed in Asian trade after surprise Fed rate cut

By Agencies


Oil prices were mixed in Asian trade Wednesday after the US Federal Reserve cut key interest rates in a surprise move amid deepening worries of a likely US recession, dealers said.

In morning trade, New York's main contract, light sweet crude for delivery in March, was eight cents up at 89.29 dollars a barrel.

The February contract, which expired Tuesday, had closed 72 cents lower at $89.85 in New York overnight.

Brent North Sea crude for March delivery was one cent lower at $88.44 a barrel.

In an unexpected move Tuesday, the Federal Reserve slashed its key interest rate by an unprecedented 75 basis points to 3.50 per cent in an effort to offset a housing downturn and credit crisis that threaten US economic growth.

"The crude oil futures market moved in line with a global sell-out but the cut in interest rates would stabilise the sell-off in equities," said Victor Shum, an analyst with energy consultancy Purvin and Gertz in Singapore.

The Fed acted after Monday's massive plunge on stock markets around the world as US recession fears deepened.

Interest rates reduction can encourage demand for oil and other commodities in the United States, which is the world's biggest economy and largest energy consumer, analysts said.

With crude oil holding steady at around 89 dollars, Shum believes that the move to cut interest rates has "stabilised the US stock market even though it closed lower on Tuesday".

Shum added that crude oil prices are expected to move upwards Wednesday.

The market is also awaiting a February 1 meeting of the Organisation of the Petroleum Exporting Countries (OPEC) in Vienna.

"The market does not expect OPEC to increase production output but there is speculation that there might be a decision to cut down supplies," Shum said.

Leading energy consultants CGES had warned Monday that global growth could be further endangered if OPEC decides to cut output next month.

Prices remain at high levels but have shed more than 10 per cent in value since striking a record in New York of $100.09 per barrel in early January. (AFP)