Oil prices are stable due to weak dollar
2023.01.12 16:01
Oil prices are stable due to weak dollar
By Tiffany Smith
Budrigannews.com – After the frenzied increases that rocked markets last year, the Federal Reserve is expected to keep to smaller rate hikes this year, bolstering expectations that the U.S. CPI, or, report for December came in at the lowest level predicted by economists. That naturally increased risk appetite in the majority of current forms, including oil.
After reaching a session high of $79.16, New York-traded WTI, or West Texas Intermediate, for settling up 98 cents, or 1.3%, at $78.39 per barrel, crude futures increased for the fifth time in seven days. After falling by 8.4% the previous week, the benchmark in the United States was poised to gain more than 6% for the week.
After reaching an intraday high of $81.61, Brent crude, which is traded in London, closed up $1.36, or 1.7 percent, at $84.03. After a drop of 8.5% last week, this put the global crude benchmark on track for a rise of almost 7% this week.
The Labor Department reported on Thursday that in the year to December, inflation, as measured by the CPI, increased by 6.5 percent. It was the CPI’s slowest annual increase since October 2021, indicating that the Federal Reserve, which raised rates aggressively last year to ease price pressures, will likely increase rates less frequently this year.
In contrast to the Fed’s inflation target of just 2% per year, the CPI grew at an annual rate of 9.1% in June, reaching a 40-year high. Since March, the central bank has raised interest rates seven times, adding 425 basis points to keep prices under control.
Prior to that, the central bank slashed interest rates to nearly zero in 2020 following the global COVID-19 outbreak, bringing them down to just 25 basis points. In December, the Fed imposed a more modest rate increase after enacting four consecutive 75 basis point jumbo rate increases from June to November.
Economists anticipate that the central bank will announce an even smaller 25 basis point increase for its subsequent rate decision on February 1.
On Thursday, the Fed funds rate, which is a gauge of the likelihood of a specific amount of rate hike, was above 80%, indicating a 25 basis point increase in February. Against a basket of six major currencies, including the euro and the yen, the was at a six-month low. It rises when U.S. interest rates rise and falls when they fall.
Economist Adam Button wrote on the ForexLive forum, “The Fed funds market is now more confident in 25 bps at 81% for the Feb. 1 meeting, and the U.S. dollar is now sinking.”
At the beginning of its current rate hike cycle in March 2022, the Fed made its last announcement of a 25-basis-point increase.
When WTI and Brent fell more than 8% in the first week of 2023, crude prices had one of their worst starts to a trading year.
Concerns about a global recession and the speed with which China’s top oil-importing nation could recover from a prolonged and severe coronavirus lockdown fueled the slump. In addition, the beginning of the winter cycle in 2022/23 is proving to be one of the warmest in two decades, significantly reducing the requirement for not only over the past few weeks but also in the future.
This was reflected in weekly oil inventory data that the Energy Information Administration (EIA) of the United States released on Wednesday.
The EIA reported a rise of almost 19 million barrels last week, or 11 times more than the previous week. The build defied market expectations for a decrease in inventory at a time when refiners typically use crude to increase product supply, particularly for winter heating oil.
Last week, analysts had anticipated a crude draw of approximately 2.2 million barrels.
John Kilduff, a founding partner at the energy hedge fund Again Capital in New York, stated, “I think refiners just had a slowdown in product putouts last week because the weather hasn’t been cold enough, to necessitate the creation of, say, more heating oil.”
The daily average temperature over the past week has been around 45 degrees Fahrenheit (7 degrees Celsius), rather than the 35-25 degree Fahrenheit range (around 2 to -2 degrees Celsius) that is typical for this time of year. This has marked the beginning of the 2022/23 winter season with unusually high temperatures.
The Energy Information Administration (EIA) reported that inventories of, which are refined into heating diesel, diesel for trucks, buses, trains, and ships, and fuel for jets, fell by 1.069 million barrels last week, exceeding the predicted decline of 472,000 barrels. Stockpiles of distillate decreased by 1.427 million barrels in the previous week.
On the front, compared to expectations for a build of just under 1.2 million barrels, inventories increased by 4.114 million barrels last week. Gasoline balances decreased by 346,000 barrels last week. America’s most popular fuel for automobiles is gasoline.
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