Oil prices surged by 2% on Thursday, following the Federal Reserve's significant reduction in U.S. interest rates, which aided global benchmark Brent crude in recovering from its lowest point in nearly three years, reached last week. By 12:19 p.m. ET (1619 GMT), Brent futures had climbed to $75.09 per barrel, marking an increase of $1.44, or 2%, and rebounding from last week's figures below $69 per barrel. Meanwhile, U.S. crude saw a gain of $1.53, or 2.1%, reaching $72.44 per barrel.

The U.S. central bank's decision to cut interest rates by half a percentage point on Wednesday is typically seen as a move to stimulate economic activity and energy demand. However, the market interpreted it as a potential indicator of a weaker U.S. labor market, which could slow economic growth. 'While the 50 basis point cut suggests tough economic challenges ahead, bearish investors were left unimpressed after the Fed raised the medium-term outlook for rates,' ANZ analysts noted in a report.

The Bank of England maintained its interest rates at 5.0% on Thursday. Additionally, rising tensions in the Middle East were cited as another factor boosting crude prices, according to Tim Snyder, chief economist at Matador Economics. Notably, walkie-talkies used by the Lebanese armed group Hezbollah exploded on Wednesday, following similar incidents involving pagers the previous day. Security sources attributed these incidents to Israeli spy agency Mossad, although Israeli officials declined to comment.

However, weak demand from China's slowing economy was seen as a limiting factor for oil's gains, according to Alex Hodes, an oil analyst at brokerage StoneX. Data from the Chinese statistics bureau revealed that refinery output had slowed for the fifth consecutive month in August. Furthermore, China's industrial output growth reached a five-month low last month, while retail sales and new home prices continued to weaken.

Citi analysts predict that a counter-seasonal oil market deficit of approximately 400,000 barrels per day (bpd) will support Brent crude prices within the $70 to $75 per barrel range during the next quarter, albeit temporarily. 'As 2025 global oil balances deteriorate in most scenarios, we still anticipate renewed price weakness in 2025 with Brent on a path to $60/barrel,' Citi stated in a note on Thursday.