Oil prices ended higher on Wednesday as US crude inventories dropped and the Federal Reserve cut interest rates as anticipated. However, gains were tempered as the Fed signalled a more cautious approach to further rate reductions.

Brent crude futures rose 20 cents, or 0.27%, to settle at US$73.39 a barrel, while US West Texas Intermediate (WTI) crude gained 50 cents, or 0.71%, closing at US$70.58. Both benchmarks saw intraday gains of over US$1 a barrel before retreating.

The Energy Information Administration (EIA) reported a decline in US crude and distillate inventories for the week ending Dec 13, though gasoline inventories edged higher. Total product supplied, a proxy for demand, increased to 20.8 million barrels per day, up by 662,000 barrels per day from the previous week.

Phil Flynn, senior analyst at Price Futures Group, remarked, "The market seems to have turned a corner from the negativity seen a few weeks ago, as there's growing optimism about demand."

The Federal Reserve announced a 25-basis-point rate cut, as expected, but noted a slower pace of reductions in the near future. While unemployment remains stable and inflation shows limited improvement, US central bankers projected only two quarter-percentage-point cuts by the end of 2025.

Although the Fed's announcement dampened post-settlement Brent gains, US crude futures managed to remain positive. Analysts, including StoneX's Alex Hodes, highlighted that the market had already priced in the rate cut and was more focused on the Fed's outlook for future adjustments.

Lower interest rates generally reduce borrowing costs, potentially stimulating economic growth and increasing oil demand.

MSN