The international oil benchmark, Brent crude, dropped for the first time in six days on Thursday after the United States’ Federal Reserve dampened hopes for a string of interest rate cuts and as rising US output helped keep the market well supplied.
The Federal Reserve reduced rates on Wednesday, but against expectations, the head of the US central bank said the move might not be the start of a lengthy series of cuts to shore up the economy against global economic weakness.
Brent crude, against which Nigeria’s oil is priced, fell by $3.93 to $61.12 as of 8:30 pm Nigerian time, while the US West Texas Intermediate crude dipped by $4.17 to $54.41 per barrel.
“A relatively upbeat mood in risky assets took a spectacular U-turn after last night’s Fed decision. The dollar started to strengthen and equities and oil went into a kind of meltdown mode,” Tamas Varga of oil broker PVM was quoted as saying by Reuters.
A rising dollar makes oil more expensive for holders of other currencies and tends to weigh on commodities priced in the US currency. The dollar hit a two-year peak against the euro on Thursday after the Fed decision.
Oil’s drop came despite a bigger-than-expected decline in US inventories and a fall in production by the Organisation of Petroleum Exporting Countries in July, typically bullish drivers for prices. But US output rose in a market that analysts say is well supplied.
“Supply is plentiful and demand growth is showing signs of weakening globally because of trade conflicts, Brexit and other events that tend to potentially weaken economic growth and, hence, oil demand,” Victor Shum, senior partner at IHS in Singapore, said.
“There’s a lot of oil out there. US output is growing strongly.”