Oil price slide arrested by rate cut

23 January 2008

The slide in crude oil prices was partially arrested on Tuesday after the US Federal Reserve announced an emergency interest rate cut.

Crude prices have slumped since hitting record highs in early January, as evidence pointing towards a recession in the US grew.

In an effort to halt the economic slowdown and stimulate growth the Fed decided to cut its benchmark interest rate from 4.25 per cent to 3.5 per cent, despite its committee not being scheduled to meet for a further week.

US crude for February delivery closed Tuesday's trading at $89.85 (€61.57) a barrel. The figure represented a 72-cent fall from the last official close on Friday, but the contract had traded as low as $86.11 in the hours before news of the rate cut emerged.

Eric Wittenauer, an analyst with AG Edwards, told Bloomberg the rate cut's impact would be limited, explaining: "The Fed move has given us some support but it's not enough to reverse the downward course of the energy market."

Falls in the crude oil price are likely to result in a drop in the cost of home heating oil and Irish consumers could benefit from that without having to endure a recession, according to Taoiseach Bertie Ahern who said on Tuesday that Ireland's economy is strong enough to deal with "international volatility".