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Oil Edges Down as Rate-Cut Anticipation Balances Demand Fears

Sheela Tobben

(Bloomberg) -- Oil ended lower as weak U.S. factory data highlighted demand concerns, and prospects of a Federal Reserve interest rate cut.

Futures fell 0.6% on Thursday after a choppy session. Investors are balancing fears about slowing global economies and demand with anticipation the Federal Reserve Chair Jerome Powell will signal a rate cut is coming during a speech Friday at a Wyoming conference.

“The market has been shifting to focus on global demand from U.S. trade policy,” said Judith Dwarkin, chief economist at Calgary-based consultant RS Energy.

Oil has fallen 17% since touching a high for the year in late April. Worldwide demand for petroleum-derived fuels to power trucks, trains, airplanes and ships has been imperiled by a protracted trade war between the U.S. and China. Efforts by Saudi Arabia and its producer allies to boost prices by restraining supplies haven’t borne fruit in the face of surging output from American shale fields.

A key gauge of industrial activity in the world’s largest economy declined for the first time in almost a decade. Meanwhile, a U.S. Federal Reserve bank president threw cold water on expectations of an imminent interest-rate cut.

“The more forward-looking components of the economic data fell more sharply into contraction, further reviving the recession fears that have concerned the market the past few weeks,” said Daniel Ghali, a commodity strategist at TD Securities in Toronto.

West Texas Intermediate crude for October delivery settled down 33 cents to $55.35 a barrel on the New York Mercantile Exchange.

Brent for October settled down 38 cents to $59.92 on the ICE Futures Europe Exchange. The global benchmark traded at a premium of $4.57.

The drop in U.S. crude inventories last week was overshadowed by a 2.61 million-barrel increase in stored supplies of diesel and other distillates, heightening demand concerns.

See also: Fed’s Three Reasons for Cutting in July Support Another Move

--With assistance from Grant Smith.

To contact the reporter on this story: Sheela Tobben in New York at vtobben@bloomberg.net

To contact the editors responsible for this story: Carlos Caminada at ccaminada1@bloomberg.net, Mike Jeffers, Christine Buurma

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