Oil Extends Rally as Investors’ Worries Ease

By Adedapo Adesanya

Oil rose for a third straight day on Wednesday, February 8, as investors felt more comfortable with risk a day after remarks from the Federal Reserve chairman eased their worries about future interest rate hikes.

Brent crude futures appreciated by 82 cents or 1.0 per cent to $84.51 a barrel, while the United States West Texas Intermediate (WTI) crude futures wen up by 93 cents or 1.2 per cent to $78.08 per barrel.

Comments from US Federal Reserve Chair, Mr Jerome Powell, on Tuesday were seen as less hawkish than feared, boosting risk appetite and weighing on the Dollar.

As the American currency weakened, it spurred buyers’ interests. A weaker US currency makes dollar-denominated oil cheaper for buyers holding other currencies.

Against a basket of currencies, the US Dollar index was narrowly up at 103.38 after slipping the previous session.

In a question-and-answer session before the Economic Club of Washington on Tuesday, Mr Powell said interest rates might need to move higher than expected if the US economy remains strong but reiterated he felt a process of “disinflation” is underway.

Investors hope less aggressive US interest rate increases will help the world’s biggest economy dodge a sharp economic slowdown or recession that would hit oil demand.

Mr Powell, however, also noted that if the US job market continued to strengthen or if inflation readings accelerated, the US Fed may have to raise its benchmark interest rate higher than projected.

Last week, data showed 517,000 jobs were added in January–a doubling over December, with employment falling to 3.4 per cent, the lowest level in over half a century.

This will add to support from China as the ending of COVID-19 curbs is expected to support demand for fuel.

On the supply front, the earthquake that struck Turkey and Syria on Monday stopped crude oil flows from Iraq and Azerbaijan out of the Turkish port of Ceyhan. BP Azerbaijan has declared force majeure on Azeri crude shipments from the port. Iraq’s pipeline to Ceyhan resumed flows on Tuesday.

Limiting oil price gains was US Energy Information Administration data showing oil production in the world’s largest producer rose last week to the highest since April 2020.

Crude inventories rose by 2.4 million barrels in the week ended Feb 3 to 455.1 million barrels.