Crude oil price extended its gains despite the recorded build in US stockpiles. The rallying was largely founded on the Fed’s slower pace of increasing interest rates; an aspect that boosted the risk appetite. As the markets digest the interest rate decision, the decline in Treasury yields and US dollar will continue to support the commodity’s prices.
Fundamentals
Traders shrugged off the reported build in US crude oil inventories as the Federal Reserve raised interest rates at a slower pace; an aspect that boosted risk appetite while weighing on the US dollar. As reported by EIA, stockpiles rose by 1.117 million barrels in the week that ended on 17th March. It missed the economists’ forecast of a draw of 1.565 million barrels.
At the same time, the Fed approved an interest rate hike of 25 basis points as expected. Notably, this was one of the highly anticipated meetings amid the banking crisis and stubbornly high inflation.
In its policy statement, the central bank indicated that further policy firming may be appropriate. This is a shift in tone from its prior stance that reiterated in the need for the “ongoing increases”.
In reaction to the Fed’s interest rate decision, crude oil price extended the gains recorded since the beginning of the week. In early Monday trade, Brent futures had dropped to a level last seen in mid-December 2021. However, it has since rebounded to find support above the psychological level of $70 per barrel.
The decline in Treasury yields and the US dollar by extension is largely behind the rebound in crude oil price. As at the time of writing, the benchmark 10-year US bond yields were down by 3.07% at 3.50%. At the same time, the dollar index was at a level last recorded in early February at 102.30. As is the case with other dollar-priced assets, crude oil price tends to move inversely to the value of the greenback.
Brent crude oil price forecast
Brent oil further recorded gains as the markets digested the Fed interest rate decision. Notably, it has been in the green for three sessions in a row. Even so, it remains below the 25 and 50-day exponential moving averages as seen on its daily chart.
For the bulls to regain control of the market, there will need to be enough buyers to push the asset above the psychologically crucial zone of 80.00. More specifically, I expect crude oil price to continue trading above 70.00 in coming weeks. In fact, this cautiously bullish thesis will be invalidated by a move below this level.
By breaking the current resistance level at 77.09, the bulls will have an opportunity to rally towards their next target at 81.68. The aforementioned level is along the 50-day EMA.
