- Oil prices increased by around 2% to a one-week high as the dollar dropped to a six-week low.
- The Fed increased its rates by an expected quarter of a percentage point.
- Crude stockpiles increased by 1.1 million barrels last week, reaching a 22-month high.
On Wednesday, oil prices increased by around 2% to a one-week peak as the dollar fell to a six-week low. This followed the US Federal Reserve’s announcement of an expected modest rate hike and a suggestion that it was ready to pause further hikes.
In response to recent market instability brought on by the collapse of US banks, the Fed increased its rates by a quarter of a percentage point. It also signaled that it was considering suspending further rises in borrowing costs.
Ritterbusch and Associates, an energy consulting firm, told customers in a note that the Fed’s 25-point rate increase was not a surprise. However, the accompanying language had caused some increase in risk appetite that easily spilled over into the oil market.
Oil demand increased due to the US dollar falling to its lowest level against a basket of other currencies, making petroleum more affordable for customers using other currencies.
The US Energy Information Administration’s (EIA) weekly statistics showed that crude stockpiles increased by 1.1 million barrels last week, reaching a 22-month high. However, the oil markets appeared unconcerned with this information.
In a Reuters survey, analysts had predicted a decrease of 1.6 million barrels. However, compared to the 3.3 million barrel increase reported Tuesday by the American Petroleum Institute, the official EIA figures indicated a smaller build.
Since December, US crude stockpiles have increased, pushing inventories to their highest level since May 2021. Meanwhile, distillate and gasoline inventories decreased by more than analysts had predicted last week.
Last week, WTI and Brent’s prices dropped to their lowest levels since 2021 due to worries that the instability in the banking sector could lead to a worldwide recession and reduce oil demand. Oil prices were revived thanks to a last-minute rescue of Credit Suisse Group AG over the weekend.
Despite the drop in crude prices, the Organization of the Petroleum Exporting Countries and its partners, such as Russia, will likely uphold their agreement to cut output by 2 million barrels a day (bpd). It will go on until the end of the year.
