Oil prices surge after ECB cuts rates

Oil prices surged on Thursday and WTI prices rose above $75.8 per barrel. If WTI price declines, it may encounter support near $71.4 per barrel, while resistance may be found near $80.8 per barrel.

Oil prices are kept in check by high central banks’ interest rates. The ECB decided on Thursday to lower its Main Refinancing Rate by 25 basis points to 4.25%, boosting oil prices. 

The US Federal Reserve kept interest rates unchanged at its latest policy meeting within a target range of 5.25% to 5.50%. The US Fed is keeping interest rates at a 23-year high, restricting economic growth and limiting the oil demand outlook as a result.

Odds of Fed rate cuts have become more moderate in recent months, putting pressure on oil prices, as policymakers have stated that they do not intend to start reducing interest rates until there is more evidence of disinflation. Rate cut expectations have been on the rise, however, since Core PCE price index data last week showed that inflationary pressures in the US are easing. Fed rate cut odds in September rose to 70% this week, boosting oil prices.

Oil prices dipped after the OPEC meeting on Sunday and continued to drop this week as OPEC revealed plans to restore oil supply within the next year. OPEC+ has decided to extend most of its voluntary production cuts into 2025 to boost oil prices. The organization, however, has also announced that it would gradually phase out oil production cuts and laid out plans for restoring production levels within 2025. Markets had already priced in the extension of oil production cuts and the news that OPEC eventually plans to unwind the cuts drove oil prices down.

Supply concerns provide support for oil prices, as the crisis in the Middle East threatens to disrupt oil distribution. Tensions around the Red Sea area raise concerns that hostilities may spread further in the Middle East, affecting oil supply and distribution. 

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Written by:
Myrsini Giannouli

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