Perceived Dovish Fed Remarks Linger, Oil Rises For Third Straight Day

Meanwhile, China's low Covid rates virtually guarantee an economic revival: File Image/Pixabay

Based solely on the interpretation that U.S. Federal Reserve chair Jerome Powell's remarks on Tuesday were less hawkish than feared, oil prices on Wednesday enjoyed a third straight session of gains, this time by almost 2 percent, as investors appetite for risk was kindled.

This is despite the actual content of Powell's message: that tightening monetary policy "will be a process that takes a significant period of time" – insinuating that the pain of rate hikes will only be delayed, not avoided.

Brent on Wednesday settled up $1.40, or 1.7 percent, to $85.09 per barrel while West Texas Intermediate settled up $1.33, or 1.7 percent, to $78.47.

However, limiting gains was Energy Information Administration data showing that U.S. oil production rose last week to the highest level since April 2020, and this caused Bob Yawger, director of energy futures at Mizuho, to state that, "There are some people out there definitely throwing money at the production side of the business...that was bearish for the market."

U.S. inventory builds proved to be in line for once with analytical expectations: they rose by 2.4 million barrels in the week ended Feb 3 to 455.1 million barrels.

But mixed messages continue to be issued by the analytical community: while some were dismayed by the inventory climb and production hikes at a time when they believe demand is fragile, Stephen Brennock of oil broker PVM remarked, "A looming oil demand surge together with lacklustre global supply growth will ensure that the oil balance tightens over the coming months."

In a similar vein, Afshin Javan, Iran's representative to the Organization of Petroleum Exporting Countries (OPEC), told  media on Wednesday that global oil prices may rebound to about $100 per barrel in the second half this year thanks to China's economy being released from the chokehold of Covid lockdowns.

Javan also defended OPEC's decision in December to cut production, pointing out that the initiative was taken "because it was not very optimistic about the demand side."

One thing in the chronically uncertain world of oil trading seems certain, though: China's move away from its zero-tolerance Covid policy has not, as some critics feared, led to a national health crisis: in fact, the country's Center for Disease Control and Prevention reported on Wednesday that daily fatalities at hospitals across the mainland slid to 102 as of Monday, down 97.6 percent from a high of 4,273 on Jan. 4; and severe hospitalized cases fell to 2,000, a 98 percent drop from the peak of 128,000 on Jan. 5.

This all but guarantees that China's economic recovery will happen far quicker and maybe even far more dramatically than expectations.