Surge in Oil Prices Fueled by Optimistic Demand Outlook Following Fed’s Policy Shift.
Early Thursday in Asian trading, oil prices continued their upward momentum, building on the gains observed on Wednesday. The surge followed signals from the Federal Reserve indicating a potential trio of rate cuts in the coming year, fostering optimism for economic growth and increased oil demand.
As of Thursday morning, the U.S. benchmark WTI Crude displayed a 1.77% increase, reaching $70.70, while the international benchmark, Brent Crude, recorded a 1.80% rise, reaching $75.60.
Oil prices, which had recently touched their lowest levels since June earlier in the week, sustained Wednesday’s positive trend into Thursday. This movement was attributed to the Federal Reserve’s decision to maintain unchanged interest rates on Wednesday, signaling a less hawkish stance in the upcoming year, with the prospect of three rate cuts throughout 2024.
The Fed’s comments on Wednesday triggered a rally in stocks, bonds, and gold, causing the U.S. dollar to fall to a four-month low.
A devalued U.S. dollar tends to lower oil costs for buyers using currencies other than the U.S. dollar, resulting in a typical upswing in oil prices during a dollar decline.
In response to Chair Jerome Powell’s statements asserting that the Federal Reserve doesn’t require a recession to initiate interest rate cuts next year, the Dow Jones index soared to a new all-time high.
“Crude oil prices rebounded ahead of the Fed meeting, and the event propelled them even higher,” noted Tina Teng, a market analyst at CMC Markets. “The initial boost in price was driven by a more significant than anticipated drawdown in U.S. inventory,” Teng added.
Earlier on Wednesday, crude oil prices reversed their downtrend following the U.S. Energy Information Administration (EIA) reporting an estimated inventory reduction of 4.3 million barrels for the week ending December 8.
Also on Wednesday, OPEC maintained its oil demand growth projections for the current and next year, attributing the recent decline in oil prices to “exaggerated concerns about oil demand growth” and emphasizing better-than-expected economic performance thus far this year.
