Oil prices fell on Friday (September 19th) as concerns about large supply and falling demand outweighed expectations that the first interest rate cut of the year by the US Federal Reserve would spur increased consumption.

Brent crude futures closed at $66.68 per barrel, down 76 cents, or 1.1%. US West Texas Intermediate crude futures closed at $62.68, down 89 cents, or 1.4%. Both benchmarks rose for the second straight week.

"Oil supplies continue to be strong, and OPEC is easing its oil production cuts," said Andrew Lipow, president of Lipow Oil Associates. "We haven't seen the impact of sanctions on Russian crude exports yet." The Fed cut its benchmark interest rate by a quarter of a percentage point on Wednesday and indicated that further cuts could follow amid signs of weakness in the US labor market.

Lower borrowing costs typically boost oil demand and push prices higher.

John Kilduff, a partner at Again Capital, said a future Fed rate cut of a quarter percentage point is unlikely to boost the oil market because it would further weaken the dollar, making oil more expensive to buy.

"The Fed will have to be more aggressive than it has been in the past," Kilduff said. "We need a 50 basis point increase to stimulate demand. The Fed's actions have no impact on crude oil market growth because of the underlying market fundamentals."

On the demand side, all energy agencies, including the US Energy Information Administration (EIA), have signaled concerns about weakening demand, dampening expectations of significant price increases in the short term, said Priyanka Sachdeva, an analyst at Phillip Nova. Lipow also sees an impact on the demand side. "The refinery turnaround season will further reduce demand," she said. Refineries shut production units in the spring and fall for extensive repairs, known as turnarounds.

The higher-than-expected increase in US distillate stockpiles of 4 million barrels has fueled demand concerns in the world's largest oil consuming nation and weighed on prices. Recent economic data has further exacerbated concerns, with the US labor market weakening while single-family homebuilding plunged to its lowest level in years in August, weighed down by a glut of unsold new homes. (alg)

Source: Reuters