Oil prices experienced a boost in tandem with the broader financial markets following a signal from the Federal Reserve suggesting that an imminent interest rate hike might not be in the cards. This development has provided some relief to concerns about weakening demand.
The global benchmark, Brent crude, climbed above $85 per barrel, rebounding from a recent 5% dip over the previous three sessions. Meanwhile, West Texas Intermediate (WTI) oil was hovering near $81 per barrel. The Federal Reserve refrained from raising borrowing costs for the second time on Wednesday and indicated that the recent uptick in longer-term Treasury yields had lessened the urgency for another rate hike.
In the Middle East, the Israel-Hamas conflict remained contained, with some refugees granted permission to escape the fighting in Gaza and cross into Egypt. The resolution, mediated by Qatar, required agreement between Israel, Egypt, and Hamas. While U.S. President Joe Biden called for a pause in fighting to secure the release of hostages held in Gaza, he stopped short of endorsing a full cease-fire.
Oil markets have now shed their war premium, as fears of the conflict spreading across the wider region and disrupting oil supplies have, thus far, failed to materialize. Oil options pricing now reflects a lower risk of escalation. Consequently, attention has shifted toward signs indicating a potential weakening of the global demand outlook. In China, the world’s largest crude oil importer, manufacturing activity slipped back into contraction last month.
Despite lingering concerns related to the Israel-Hamas conflict, Charu Chanana, a market strategist with Saxo Capital Markets Pte in Singapore, noted, “the Fed’s less hawkish message supports the growth outlook.” As major central banks adopt a more dovish stance, crude oil prices may find some support, although the prospect of rate cuts is not on the immediate horizon.
In the United States, national oil stockpiles increased for a second consecutive week, rising by 773,000 barrels, according to data from the Energy Information Administration. Inventories at the Cushing, Oklahoma oil storage hub also saw an uptick.
Source: [Energy Connect]
