Oil prices rose nearly 4% as the weakening U.S. dollar sparked a ‘short covering’ rally.
Oil prices rose on Thursday, helped by gains in Wednesday’s session as a weaker U.S. dollar helped boost commodity prices.
price action
West Texas Intermediate crude oil of CL00 in January;
+3.53% CL.1,
+3.53%
On the New York Mercantile Exchange, it rose $2.54 (3.7%) to $71.01 per barrel.February Brent crude oil BRN00,
+3.43% BRNG24,
+3.43% ,
Global benchmark ICE Futures Europe rose $2.63, or 3.5 percent, to $76.89 a barrel.January gasoline RBF24,
+3.87%
Up 3.8% to $2.102 per gallon, January heating oil HOF24;
+1.83%
At Nymex, it rose 2.2% to $2.604 per gallon.Natural gas NGF24 for delivery in January;
+1.46%
It increased 2.1% to $2.385 per million British Thermal Units.
market drivers
Oil prices continued to rise following the Federal Reserve’s decision Wednesday when the central bank announced plans to cut interest rates three times next year.
read: Powell was surprised by his dovish stance. Economists debate how many interest rate cuts the Fed will make in 2024.
Market analysts said the Fed’s policy statements and outlook were clearly dovish, sending the U.S. dollar and Treasury yields lower. As a result, commodity prices are rebounding. Commodities sold around the world are typically priced in dollars, so they often benefit from a weak U.S. dollar.
The US dollar continued to weaken on Thursday, driven by the ICE US Dollar Index DXY.,
101.905, a popular gauge of the dollar’s strength against its major peers, was down 0.9%.
“The recent oil price slump, triggered by OPEC’s ‘exaggerated concerns’ about demand, has been a key factor in the Fed signaling the end of its rate hike cycle,” said Phil Flynn, senior market analyst at The Price. Futures Group said in its daily report:
There is a possibility of perhaps three rate cuts in the new year, according to CME Group’s Fed Fund Futures. “This has led to a huge risk-on rally in stocks that looks almost scary and a big bounce in commodity prices that have been depressed recently against the pace of the world,” Flynn said.
Read on for the year ahead: Why oil won’t make $100 per barrel in 2024
The Federal Reserve’s decision on Wednesday has far-reaching implications for markets, with traders largely ignoring a report from the International Energy Agency that warned weak demand is likely to persist along with increased supply from non-OPEC+ countries. The daily demand forecast was lowered by 400,000 barrels compared to the previous forecast announced a month ago.
Ole Hansen, head of product strategy at Saxo Bank, said short traders had helped fuel the rise in oil prices after they recorded their longest decline since 2018.
“Crude oil prices are trading higher in short sales due to a combination of a weak dollar, sharp declines in yields and expectations of lower interest rates next year,” Hansen said. “In recent weeks, positioning has become increasingly geared toward lower prices, and with the FOMC pivoting toward rate cuts, oil prices could potentially have reached their current lows.”
read: Here’s how the COP28 agreement to phase out fossil fuels will impact oil:
See also: EIA predicts that solar and wind power generation will surpass coal power generation next year.
Meanwhile, natural gas futures maintained early gains after the Energy Information Administration (EIA) reported Thursday that U.S. natural gas storage fell by 55 billion cubic feet during the week ended Dec. 8. This was consistent with the average weekly decline predicted by analysts surveyed. Provided by S&P Global Commodity Insights.
