The prices of crude oil slipped on Thursday as a surging U.S. dollar weighed on global markets, with investors turning cautious ahead of a key speech from U.S.
Federal Reserve Chairman Jerome Powell. Brent crude dropped to $71.67 per barrel, while the U.S. benchmark, West Texas Intermediate (WTI), declined to $67.84 per barrel, reflecting market uncertainty over the Fed’s future policy stance.
This decline in oil prices aligns with recent U.S. inflation data, which showed a persistent increase, suggesting the Fed’s battle against inflation might extend longer than anticipated. Rising inflation and speculation around the Fed’s next move have prompted concerns that a widely anticipated rate cut in December may be delayed, as the central bank balances inflation control with economic stability.
Market observers are now keenly awaiting Powell’s comments on economic outlook, which could offer clues on whether the Fed will proceed with a rate cut next month. Money market futures are currently pricing in an 83% probability of a 25 basis point rate cut, though further signs of inflation may prompt the Fed to reconsider.
The strong U.S. dollar has added to the pressure on oil markets, raising energy costs for major importers like China and India and potentially dampening demand. High interest rates have bolstered the dollar against other currencies, pushing the DXY dollar index up by 0.1% to 106.601 on Thursday, after hitting a one-year high of 106.775 earlier in the week.
Analysts at Swissquote Bank noted that the dollar remains in “overbought market territory,” suggesting a possible correction. However, its outlook remains positive, driven by rising inflation expectations and concerns over the Fed’s capacity for continued rate cuts under president-elect Donald Trump’s proposed economic policies.
Adding a layer of complexity to the oil market’s outlook, data from the American Petroleum Institute (API) indicated a 777,000-barrel decrease in U.S. crude inventories last week, contrasting market expectations of a 1 million-barrel increase. This surprising draw suggests robust demand, potentially influenced by heightened energy use over the prior week.
As investors keep a close watch on Powell’s forthcoming address, the U.S. Energy Information Administration is expected to release its official inventory report later today, which will provide further insights into supply and demand dynamics in the U.S. oil market.
