Oil prices hold on to gains after two day rally amid signs of tightening market
Oil prices continued their upward trajectory on Thursday, following a two-day rally. This was attributed to traders consolidating their positions amid positive US inflation data and signs of a tightening market. Brent, the global oil benchmark, was up 0.02% at $87.35 a barrel on Thursday, while West Texas Intermediate (WTI), the gauge that tracks US crude, increased 0.07% to $83.32 a barrel. Both benchmarks are trading close to their highest close since mid-November.
Consolidation or downtrend?
Vanda Insights, a Singapore-based oil market intelligence company, said the slight dip in crude futures on Thursday signalled more of a consolidation rather than a strong downwards momentum. It was following Wednesday’s 2% gains, and financial market sentiment was the main influence on the crude complex through Wednesday. The US Energy Information Administration’s weekly report, which showed minor domestic inventory changes and no surprises on the demand front, was largely shrugged off.
US administration’s strategic petroleum reserve plan
Energy Secretary Jennifer Granholm's announcement that the US plans to refill its Strategic Petroleum Reserve soon, to take advantage of lower oil prices, gave oil prices a further boost. Ms Granholm's statement indicates that the US wants to soon bring back the Strategic Petroleum Reserve back to pre-Ukraine war levels. Edward Moya, senior market analyst at Oanda, said this is a sign that oil prices got a boost. However, Ms Granholm didn’t specify when or if the US would be buying at different levels than they have signalled in the past.
Cooling US inflation data is a significant factor
The biggest support for oil on Wednesday was from the cooling US inflation data. The Federal Reserve's interest rate increases since March last year have helped ease price pressure on households and businesses. Data released by the Labour Department showed a 0.1% rise in the Consumer Price Index in March, down from a 0.4% increase in February. Headline inflation slowed to 5% on an annual basis last month.
OPEC+ production cuts
Crude prices have rebounded since hitting a 15-month low in March, as fears of a global banking crisis have faded and crude inventories have fallen. A surprise move by nine OPEC+ members to voluntarily cut production also helped oil post its third weekly gain last week. OPEC+ producers have said they would introduce voluntary oil production cuts of 1.16 million barrels per day from May until the end of this year, while Russia said the 500,000 bpd cut it was implementing from March to June would continue until the end of the year. The voluntary production cuts by OPEC+ members should tighten the oil market further from May onwards and boost prices, according to the latest oil report by Swiss lender UBS, which expects crude prices to rally towards the $100 per barrel mark in quarters to come.
China’s oil imports rise
Despite positive data from China, the world's largest crude importer, oil prices took a small dip on Thursday. China’s oil imports in March surged 22.5% from a year earlier to the highest for a single month since June 2020, as refiners stepped up runs in anticipation of an economic recovery, Reuters reported, citing data from China's General Administration of Customs. The country imported 52.3 million tonnes of crude in March, or 12.3 million bpd, compared with 10.1 million bpd of crude imported in March last year, indicating that economic activity in the world’s second-largest economy is picking up pace after the pandemic-driven slowdown last year.
How oil prices relates to Forex
Oil prices can significantly impact the forex market, especially for countries that are heavily reliant on oil imports or exports. If oil prices rise, the currencies of net exporting countries like Saudi Arabia and Russia may strengthen while the currencies of net importing countries like India and Japan may weaken. Forex traders can use the movement of oil prices to predict potential currency movements. Along with oil prices, traders also monitor other economic indicators such as inflation rates, interest rates, and GDP growth to identify profitable trading opportunities in the forex market. Keeping up-to-date with the latest economic data and market developments can help traders make informed trading decisions.
Source: The National News