Oil prices saw slight increases on Wednesday, driven by optimistic expectations regarding U.S. demand. This rise comes ahead of new economic data, which is anticipated to influence the Federal Reserve’s (Fed) upcoming policy decisions. However, gains were limited due to the strong U.S. dollar. This upward trend also follows reports that U.S. crude inventories decreased more than expected.
Brent crude was trading at $77.84 per barrel at 07:17 GMT, marking a 0.32 percent rise from its last closing price of $77.59 a barrel on Tuesday. On the other hand, West Texas Intermediate (WTI) was trading at $72.53 per barrel. This is a 0.40 percent increase from its previous close of $72.24 per barrel.
U.S. oil supply
According to a recent American Petroleum Institute (API) announcement, U.S. crude oil inventories experienced a significant drop of approximately 5.2 million barrels, surpassing market predictions of a 1.2 million barrel decline.
“However, there was a substantial increase in product inventories, with gasoline and distillate stocks rising by 4.9 million barrels and 6.9 million barrels, respectively,” observed analysts at ING.
The Energy Information Administration (EIA) has also updated its 2024 forecast for U.S. crude oil production, expecting an average of 13.2 million barrels per day, projected to increase to 13.4 million barrels per day in 2025.
Read: Saxo Bank: Understanding crude oil dynamics as 2024 gets underway
Market on the watch
Market participants are also closely watching for the U.S. Bureau of Labor Statistics to release the December Consumer Price Index (CPI) on January 11. This key inflation measure could greatly impact the Fed’s future interest rate decisions.
In December, the Federal Open Market Committee (FOMC) recognized that the central bank had effectively reduced inflation. However, they pointed out that inflation remains higher than their long-term target, and there’s a concern that progress in achieving price stability might slow as inflation nears the Fed’s 2 percent goal.
Inflation and economic data will heavily influence the Fed’s policy decisions. Fed officials hint at a possible shift towards reducing interest rates this year, depending on inflation and economic trends.
The Fed’s upcoming meeting is scheduled for January 30 to 31, with experts expecting a cautious, data-driven approach from the policymakers.
More factors to consider
The strengthening U.S. dollar is also impacting crude oil prices. The dollar’s rise, supported by higher U.S. yields and the nation’s solid economic performance, makes oil (priced in dollars) costlier for other currency holders.
Another factor affecting oil prices is Saudi Arabia’s strategic decision to reduce its crude oil prices. Specifically, it’s cutting $2 per barrel for Asian clients. This move is in response to demands for more competitive pricing due to strong regional competition.
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