Oil prices closed higher on Wednesday following a decline in U.S. crude inventories, although gains were moderated by the Federal Reserve’s cautious stance on future interest rate cuts.
Key Highlights:
Price Movements:
Brent futures settled up 20 cents (0.27%) at $73.39 a barrel.
U.S. West Texas Intermediate (WTI) crude rose by 50 cents (0.71%) to $70.58. Both benchmarks had previously surged by more than $1 at session highs before retreating.
Inventory Changes:
The Energy Information Administration (EIA) reported a decrease in U.S. crude and distillate inventories, while gasoline stocks increased for the week ending December 13.
Total product supplied, a proxy for demand, rose to 20.8 million bpd, an increase of 662,000 bpd from the previous week.
Market Sentiment:
Phil Flynn, a senior analyst for Price Futures Group, noted a shift in market sentiment, stating, “The market seems to have turned a corner from all the negativity we saw a couple weeks ago as there is more optimism about demand.”
Fed’s Interest Rate Decision:
The U.S. Federal Reserve cut interest rates as anticipated but indicated a slower pace of future cuts due to a stable unemployment rate and minimal recent progress in inflation.
The Fed projected only two quarter-percentage-point rate reductions by the end of 2025.
Impact of the Strong Dollar:
Following the Fed’s announcement, both Brent and WTI futures experienced a decline in post-settlement trade, coinciding with the dollar index reaching a year-to-date high of 108.156.
A stronger dollar makes oil more expensive in foreign markets, potentially reducing demand.
Investor Expectations:
Oil investors had already anticipated a 25-basis-point cut, according to StoneX analyst Alex Hodes, who highlighted that investors were particularly focused on the Fed’s outlook for future cuts.
Lower interest rates typically decrease borrowing costs, which can stimulate economic growth and increase demand for oil.