Oil prices rose on Wednesday by 2%, as the latest U.S. inflation data suggested that the Federal Reserve might end its cycle of interest-rate hikes, cushioning the impact of a slight increase in U.S. crude oil stocks. Brent crude rose by $1.72 or 2.01% to $87.33 a barrel, while U.S. West Texas Intermediate closed up $1.73 or 2.1% to $83.26 a barrel. In March, the Consumer Price Index (CPI) in the United States increased by 0.1%, resulting in a 5% year-over-year increase since March 31, which is the smallest rise since May 2021.
The CPI climbed 0.4% in February and 6% year-on-year. The cooling inflation data spurred hopes that the Fed is getting closer to ending its cycle of interest-rate hikes. The weaker U.S. CPI print raised doubts over whether the Fed would hike rates next month, according to Fawad Razaqzada, the market analyst at brokerage StoneX. Simultaneously, the reduction in expectations for interest rate cuts eased concerns of a recession, providing support for asset prices denominated in the U.S. dollar.
Following the release of the U.S. inflation data, government bonds, gold, and global stocks all experienced a surge, while the dollar saw a sharp decline. The weakening of the U.S. currency has made dollar-denominated oil more affordable for those holding other currencies.
Despite crude inventories rising by 597,000 barrels to 470.5 million, instead of the expected 600,000-barrel drop according to a Reuters poll, the market showed little concern. Some experts attributed the slight increase to a congressionally mandated release of oil from the U.S. emergency reserve and lower exports at the beginning of the month. Meanwhile, U.S. Analysts’ predictions were exceeded as gasoline stocks fell by 300,000 barrels and distillate stockpiles, including diesel and heating oil, decreased by 0.6 million barrels.
According to Fatih Birol, the executive director of the International Energy Agency, the global oil market may experience tightness in the latter half of 2023, leading to an increase in oil prices. However, the International Monetary Fund’s recent decision to revise down its 2023 global growth outlook could adversely affect oil demand, as it cited the impact of higher interest rates as a contributing factor to the downgrade.
On Thursday, investors are eagerly waiting for the monthly reports from the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency. The reports will provide a better understanding of the supply and demand of oil, and investors are looking forward to gaining greater clarity on the matter.
Meanwhile, the U.S. Energy Information Administration recently reduced its projection for oil production by OPEC nations for the remainder of 2023, forecasting a decrease of 0.5 million barrels per day.