Americas News
Lessening Rate Hike Fears Cause Oil Prices To Hit Five Month High
A declining increase in the U.S. Consumer Price Index last month coming on the heels of an unexpectedly low increase in February stoked bullish sentiment among crude traders on Wednesday, the result being a 2 percent rise in the commodity.
Brent settled up $1.72, or 2.01 percent, at $87.33 per barrel, while West Texas Intermediate closed up $1.73, or 2.1 percent, to $83.26 - its highest level in five months.
The U.S. CPI climbed just 0.1 percent last month compared to 0.4 percent in February, and Fawad Razaqzada, market analyst at StoneX pointed out that this “has raised doubts over whether the Fed will now hike rates at all next month; falling interest-rate expectations are reducing recession concerns and helping to support buck-denominated asset prices at the same time."
Dennis Kissler, senior vice president of trading at BOK Financial, added that hedge funds were buying oil futures over the past few days in anticipation of improving demand.
All of this was in stark contrast to the mood among investors at the beginning of this week, when fears of another interest rate hike were stoked by news that the U.S. unemployment rate was at 3.5 percent, indicating labour market resilience and perhaps inspiring the Fed to take action next month.
The new found courage of oil traders also enabled them to overlook a report from the American Petroleum Institute showing that crude inventories rose by 380,000 barrels in the last week and gasoline inventories climbed.
Moreover, WTI’s prompt spread was reportedly at 17 cents in backwardation on Wednesday, the highest this year on a closing basis; Ilia Bouchouev, a former trader and an adjunct professor at New York University, noted that this along with the recent pace of the changes across the futures curve “are bullish signals for algorithm-driven traders to take up long positions.”
Further fuelling bullish sentiment was analysts once again predicting a tight market for the second half of 2023: Fatih Birol, executive director of the International Energy Agency, said on Wednesday that oil prices would rise as a result (he also speculated that global fossil fuel consumption could peak before the late-2020s).
