New york: Oil prices are set to gain support from the United States (US) Federal Reserve's (Fed) latest rate cut, which is expected to lift global demand sentiment, according to independent energy research company, Rystad Energy. Fed chair Jerome Powell announced the US central bank's decision to cut its key interest rate by 0.25 percentage points earlier today.

According to BERNAMA News Agency, at 11.10 am, global benchmark Brent crude slid 0.26 percent to US$67.77 per barrel. In a statement, Rystad Energy chief economist and global director of Market Analysis, Claudio Galimberti, said the Fed's rate cut is bull-steepening US Treasuries, with front-end yields falling on lower policy rates while long-end yields remain high due to government deficit concerns.

Galimberti stated, "For energy, lower short-term yields weaken the dollar and lift global demand sentiment. For Brent in particular, today's cut and the two expected by the end of the year will be a bullish factor, which will in part counter the bearish Organisation of the Petroleum Exporting Countries and its allies' (OPEC+) unwinding strategy."

He further explained that the Fed's rate cut eases financing costs, providing a boost to large projects by lowering the weighted average cost of capital (WACC), though the extent of the impact depends on long-end yields and investor interest in capital expenditure-heavy projects.

Galimberti also noted that the Fed's announcement comes amid intense pressure from US President Donald Trump to reduce interest rates to help further bolster the economy and cushion any potential impact of his sweeping tariffs package on economic activity. "The rate cut of a quarter percentage point was largely in line with expectations and comes after the bank had kept it in the 4.25-4.50 percent range since December, following a full percentage point reduction over the course of 2024."

He highlighted that the cut coincides with data indicating slowing jobs growth in the US, as companies limit spending to evaluate the long-term effects of tariffs on growth and trade flows, despite inflation remaining above the Fed's two percent target. "The quarter-point cut confirms a widely anticipated attempt by the central bank to walk the fine line between maintaining close to full employment and preventing inflation from rising again, which clearly remains above the bank's target rate."

Galimberti concluded that beyond today's cut, the bank is projecting at least two more cuts this year, signaling a greater concern for unemployment risk over inflation risk.