Oil Market Up on Small US Crude Stocks Build, Fed Rate Cut Signal

March 7, 2024
global oil market

By Adedapo Adesanya

The oil market edged up about 1 per cent on Wednesday on a smaller-than-expected build in US crude inventories and positive signals by the US Federal Reserve on interest rate cuts this year.

Brent futures rose 92 cents or 1.1 per cent to $82.96 per barrel, while the West Texas Intermediate (WTI) futures appreciated by 98 cents or 1.3 per cent to settle at $79.13 per barrel.

Crude oil prices moved higher after the Energy Information Administration (EIA) reported estimated inventory draws across fuels. In crude, the EIA reported a build of 1.4 million barrels for the week to March 1.

The EIA also estimated draws of over 4 million barrels each in gasoline and middle distillate stocks compared with the 4.2 million barrels for the previous week, which was accompanied by a draw across fuels. It also compared with an estimated crude inventory increase of a modest 423,000 barrels for the week to March 1, as reported by the American Petroleum Institute (API).

Support also came as US Federal Reserve Chair Jerome Powell said the American central bank still expects to reduce its benchmark interest rate later this year.

This will happen even though policymakers still need greater confidence in inflation’s continued decline. The US has an inflation target of 2 per cent.

Further rate hikes appear to be off the table, with Mr Powell repeating that the current benchmark rate, held in the 5.25 per cent to 5.5 per cent range since July, was likely at its peak.

Lower interest rates could increase oil demand by boosting economic growth.

Support also came as the US Dollar slipped to a one-month low against a basket of other currencies after Powell’s comments.

A weaker Dollar can boost demand for oil by making the fuel cheaper for buyers using other currencies.

The market also moved away from China even as the world’s largest importer earlier this week announced new measures to stimulate stronger growth that fell short of expectations which it put at 5 per cent.

Meanwhile, talks on a ceasefire and hostage exchange between Israel and Hamas were at an impasse as the humanitarian crisis in Gaza deepened and a merchant vessel was on fire after a fatal attack in the Red Sea.

The disruption in oil tanker movements due to Red Sea attacks by the Iran-backed Houthi militia in Yemen, along with the latest 2.2 million barrels per day supply cut extension by the Organisation of the Petroleum Exporting Countries and allies (OPEC+) was causing supply tightness, especially in Asian markets.

Adedapo Adesanya

Adedapo Adesanya is a journalist, polymath, and connoisseur of everything art. When he is not writing, he has his nose buried in one of the many books or articles he has bookmarked or simply listening to good music with a bottle of beer or wine. He supports the greatest club in the world, Manchester United F.C.

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