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Oil prices jump as rate hike doubts dent dollar

Published Nov 02, 2023 09:14 Updated Nov 03, 2023 02:54
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Investing.com -- Oil prices settled higher Thursday, rebounding from a one-month low spurred by lower dollar after traders priced in a diminished chance of more interest rate hikes from the Federal Reserve following a pause on hikes a day earlier.

By 18:30 ET (18:30 GMT), the U.S. crude futures settled 2.5% higher at $82.46 a barrel, while the Brent contract climbed 2.6% to $86.85 a barrel. Both benchmarks settled at their multi-weeks lows in the previous session, having dropped around 10% in October.

Crude benefits from more dovish Fed view

“The Fed’s decision to keep interest rate hikes on pause for a second consecutive time has bolstered economic sentiment and supported commodity prices,” said analysts at ING, in a note.

Fed Chair Jerome Powell said in a post-meeting briefing that the Fed still had a long way to go before inflation reached its 2% target. But he also noted that financial conditions had tightened substantially this year, and cited more risks to the economy.

The comments drew a sharp contraction in Treasury yields, pushing the dollar to hefty loss as traders priced in a smaller chance of another interest rate hike in December. 

A weaker dollar benefits commodities, including oil, which are priced in the greenback, as it makes the commodity cheaper for international buyers.

The crude market had suffered a difficult October, partially on fears stronger than expected economic data will lead the Fed to keep interest rates higher for longer, potentially weighing on global economic growth and curbing oil demand in China, the world’s largest consumer.

Small U.S. crude inventory build

The importance of the Fed meeting meant that markets largely traded past the weekly U.S. inventory data, with official numbers from the Energy Information Administration, released Wednesday, showing a slightly smaller-than-expected build in oil inventories over the week to October 27.

Distillate inventories saw a smaller-than-expected decline, while gasoline inventories saw an unexpected, albeit limited build. 

“Total crude oil inventory (excluding SPR) at around 421.9MMbbls remains about 5% below the five-year average at this point in the season,” said ING.

Investors will also be watching for developments in the Middle East, which has kept oil markets on edge as a wider conflict could disrupt oil supplies around the region.

European demand issues mount

However, demand could face a hit in Europe, a major energy consuming region, after data showed manufacturing activity contracted further in the eurozone in October, with the Purchasing Managers' Index falling by 0.3 points on the month to 43.1 - below the 50 level that signals contraction.

Additionally, the Bank of England held interest rates steady at a 15-year peak, and said it didn't expect to cut them any time soon as it fights to "squeeze out of the system" the highest inflation of the world's major economies.

(Ambar Warrick and Peter Nurse contributed to this item.)

Oil prices jump as rate hike doubts dent dollar
 

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