Crude oil (CL) futures
Fundamental Analysis

Oil Prices Rise Despite a Stronger Dollar

  • Oil prices held steady after the Fed’s rate hike as other risk assets fell.
  • A decrease in U.S. oil inventories pointed to a rise in demand.
  • OPEC production went down in October, raising global supply concerns.

Crude Oil (CL) futures prices increased on Wednesday despite declines in other risk assets after the Federal Reserve’s fourth rate hike of the year. Another decrease in U.S. Oil stockpiles helped to support the market as refineries increased production in preparation for the winter heating season.

After Federal Reserve Chair Jerome Powell stated it was premature to think about suspending rate rises, the Oil market maintained its advance even as stocks dipped and the dollar increased.

Fed's rate hike, inflation and PCE (source: Refinitiv)
Fed’s rate hike, inflation, and PCE (source: Refinitiv)

To reduce consumer inflation, which has risen to its highest level in four decades, the U.S. Federal Reserve raised interest rates by 75 basis points. The Fed has not yet impacted the strong labor market, although such policies have a time lag.

Powell stated that thinking about stopping the interest rate rises is premature. Wall Street rapidly gave back its gains, and yields increased due to a decline in the Treasury market.

Oil’s steady rises put a spotlight on concerns over the world’s energy supplies. Federal records show that U.S. Crude Oil supplies decreased by around 3.1 million barrels over the course of the week. This came before the crucial heating season when demand was anticipated to increase.

“There’s a lot of focus on supply/demand fundamentals and inventories, which we saw on the (EIA) release today, and about when the Russia sanctions kick in,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth U.S.

U.S. inventories are still low for most items, which worries analysts who think the coming termination of strategic reserve releases will eliminate a source of supply, further tightening markets.

Beginning on December 5, the European Union will impose an embargo on Russian Oil. The importation of Oil products will stop in February due to the ban implemented in response to Russia’s invasion of Ukraine. It is anticipated that this will restrict Russia’s capacity to export goods and Crude to other countries, potentially tightening the market.

The Organization of the Petroleum Exporting Countries (OPEC) production decreased in October for the first time since June and fell 1.36 million barrels per day short of its goals. Crude Oil futures prices may continue rising if these supply concerns are not addressed.