Crude oil price has edged higher as the market digests Jerome Powell’s comments. The decline in US inventories is also supporting the market. As at the time of writing, WTI oil was a notch higher towards retesting the critical level of $100 at $99.05. At the same time, Brent futures were at $108.06; up by 0.8%.
Crude oil inventories
Lower-than-expected crude oil inventories have extended crude oil price gains; bring the critical level of $100 back in focus for WTI futures. According to the data released by the Energy Information Administration (EIA) on Wednesday, crude oil stockpiled dropped by 4.523 million barrels for the week ending on 22nd July. The draw was higher than the forecast one of 1.037 million and prior week’s 446,000 barrels.
Notably, the high demand for gasoline in the US has also supported crude oil price. Gasoline inventories dropped by 3.304 million; the largest decline in about two months. In the previous release, the stockpiles had risen by 3.498 million barrels.
Improved risk sentiment
Easing of the US dollar has also boosted crude oil price. On Wednesday, the Federal Reserve hiked interest rates by 75 basis points for the second month in a row. So far, the central bank has increased its benchmark rates by 225 basis points.
As the market digests the decision, there has been revived optimism founded on the expectation that the central bank may ease on its aggressive hikes in coming months. It has been keen on dealing with high inflation even as concerns over a probable recession persist.
Typically, an environment of higher interest rates strengths the US dollar while weighing on crude oil price and the broader class of commodities. However, Jerome Powell’s comments following the July interest rate decision has improved the risk sentiment.
The Fed Chair has showed that the central bank is aware of the negative impact that the aggressive tightening of its monetary policy may have on the US economy. It finally admits that its efforts to fight inflation may yield slowed economic growth.
Going forward, the market will be keen on the economic data for further cues on the direction that the Fed may take in its next meeting. In the immediate term, the US GDP data is set to impact the US dollar and crude oil price by extension.