Oil prices experienced on Thursday an increase as a result of a weaker dollar and the U.S. Federal Reserve’s announcement of three anticipated interest rate cuts in 2024. Additionally, the expectation of limited supplies continued to support crude prices.
Read more: Oil prices experience slight decline on caution and limited supplies
The Fed kept interest rates unchanged on Wednesday. Following Federal Reserve Chair Jerome Powell’s speech on Wednesday, the dollar index significantly declined, which positively influenced commodity prices. Powell’s remarks also highlighted the strength of the U.S. economy, indicating a favorable outlook for oil demand.
By 21:47 ET (01:47 GMT), Brent oil futures expiring in May had risen by 0.5 percent to reach $86.41 per barrel, while West Texas Intermediate (WTI) crude futures increased by 0.5 percent to reach $81.15 per barrel. Both contracts remained close to the four-month highs reached earlier in the week.
Lowering interest rates and the robustness of the U.S. economy are promising factors for the world’s largest fuel consumer, boding well for improved demand during the spring season.
The primary catalyst for crude price support on Thursday was the decline in the dollar. The dollar index slid by 0.6 percent from its two-week high after Powell’s announcement that the Federal Reserve was contemplating a three-quarter percentage point reduction in interest rates this year.
Although Powell expressed concerns about persistent inflation, he also acknowledged the resilience of the U.S. economy. The Federal Reserve upgraded its quarterly economic projections, now anticipating a substantial 2.1 percent growth in the economy for 2024, compared to the previous forecast of 1.4 percent.
Tight supply outlook, U.S. inventories shrink
The expectation of tighter oil supplies, which had been a significant driver of crude price gains in the preceding two weeks, continued to be a dominant factor. Official U.S. inventory data from Wednesday revealed a larger-than-expected decrease in crude oil inventories for the week ending on March 15. This draw was attributed to increased refinery activity and higher oil exports.
Furthermore, a greater-than-expected decline in gasoline inventories indicated a resurgence in fuel demand following a winter lull.
With diminishing U.S. inventories and the potential for supply disruptions resulting from geopolitical tensions in Russia and the Middle East, the global crude market is expected to exhibit a tighter outlook in 2024.
There were also indications that top producers in the Organization of Petroleum Exporting Countries (OPEC) would reduce exports in March.
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