U.S. Crude Oil Gains 2% Following Fed Chair Powell’s Rate Cut Hints
U.S. light crude oil prices surged by more than 2% on Friday after comments from Federal Reserve Chair Jerome Powell signalled a potential shift towards cutting interest rates.
This rally follows a challenging week where both major oil benchmarks hit their lowest levels since January. The drop was fueled by the U.S. government revising its job growth estimates downward, stoking fears of a potential recession.
US markets near record highs after Fed chairman’s rate cut hint … Sterling hits two-year peak against dollar after Jerome Powell cites cooling jobs market@MehreenKhn @thetimes https://t.co/483LbwGK5G pic.twitter.com/dzI2TRzXhm
— John Ashcroft (@jkaonline) August 24, 2024
During his speech at the Jackson Hole economic symposium, Powell confirmed the Federal Reserve’s readiness to ease monetary policy, emphasizing that any further cooling in the labour market could be detrimental.
He also expressed optimism that inflation was nearing the Fed’s 2% target, indicating that the conditions for a rate cut are approaching.”The upside risks to inflation have diminished, while the downside risks to employment have increased,” Powell noted during his highly anticipated address.
"Inflation, while still above the Fed’s 2% target, has been falling steadily in recent months.
“The cooling in labor market conditions is unmistakable,” Powell said.
“We will do everything we can to support a strong labor market making further progress toward price stability.”
— Florence (@Florenc39933400) August 23, 2024
His comments have fueled expectations that the central bank may soon pivot towards lowering rates, a move that could have significant implications for various asset classes, including oil.
Impact of Weaker Dollar and Tight Oil Inventories
Following Powell’s remarks, the U.S. dollar index softened to around 101.45, making dollar-denominated oil more attractive to investors holding other currencies. A weaker dollar generally boosts demand for commodities like oil, as it becomes cheaper for foreign investors.
Powell's tone hints at upcoming rate cuts, boosting stocks, lowering bond yields, and weakening the USD.
Impact:
Gold and Bitcoin could thrive as investors seek alternatives in a more relaxed monetary environment.Markets are poised for a supportive Fed and potential gains but… pic.twitter.com/i9Sqsp7yvQ
— Saheb (@CryptoSaheb) August 23, 2024
Morgan Stanley added further optimism to the market, noting in a report that oil inventories have been drawing down by approximately 1.2 million barrels per day over the last four weeks.
This depletion in stockpiles is expected to continue through the remainder of the third quarter, which could further support oil prices.”
Currently, the balance in the oil market is tight, with inventories drawing at a significant pace,” the bank stated, highlighting the ongoing supply-demand equilibrium in the market. However, the market remains cautious due to economic concerns from China, the world’s largest oil importer.
Recent data points to a struggling Chinese economy, which has led to decreased oil demand from refiners. In addition, ongoing ceasefire discussions in Gaza have helped ease supply concerns, contributing to the recent volatility in oil prices.
WTI Crude Oil Price Outlook
WTI Crude Oil is currently testing a key resistance level around $75.40, where both the 200-day EMA and a downward trendline converge.
This area is critical in determining the next price movement. A close above $75.40 could signal a bullish breakout, potentially driving prices higher.
However, if the price fails to break through this resistance, it could retrace to immediate support levels around $73.94 or even lower to $72.75.
- RSI: The Relative Strength Index is hovering around 60, indicating moderate bullish momentum but still below overbought levels.
- 50 EMA: The 50-day Exponential Moving Average is positioned at $73.69, offering near-term support.
Conclusion
Keep a close eye on the $75.40 resistance level. A breakout above this could lead to further price gains, while failure to do so may invite selling pressure and push prices lower.
The market’s response to Fed policies and inventory data will likely shape the next move in crude oil prices.
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