On Wednesday, oil prices saw a 2% increase, with hopes that the Federal Reserve will soon end its cycle of interest rate hikes, spurred by the cooling US inflation data. The small build in US crude oil stocks was also cushioned by the rise in prices.
Brent crude increased by 2.1% to $87.40 a barrel, while US West Texas Intermediate rose by 2.3% to $83.43. These prices had already risen about 2% on Tuesday.
According to the Labor Department, the US Consumer Price Index (CPI) climbed 0.1% last month, a smaller increase than the 0.4% in February. The CPI had increased by 5% in the 12 months leading up to March 31, the smallest year-on-year gain since May 2021. The CPI had previously risen by 6% year on year in February.
Robert Yawger, Director of Energy Futures at Mizuho Securities, said, “The CPI number implies, to a certain degree, that the Fed will start cutting rates by the end of the year. That’s a positive demand development for energy.”
Hedge funds were buying oil futures in the market, anticipating an increase in demand, according to Dennis Kissler, Senior Vice President of Trading at BOK Financial.
US President Joe Biden’s top economic adviser and former Federal Reserve Vice Chair, Lael Brainard, also mentioned that she saw a decrease in inflation.
Markets disregarded the small build in US crude oil stocks, attributing it to the release of oil from the US emergency reserve, which was congressionally mandated, and lower exports at the start of the month.
Crude inventories rose by 597,000 barrels in the last week, reaching 470.5 million, compared with the Reuters poll, which had expected a 600,000 barrel drop.
The dollar fell sharply after the data, causing government bonds, a gauge of global stocks, and gold to rally. A weaker US currency also makes dollar-priced oil cheaper for buyers holding other currencies.
The International Monetary Fund trimmed its 2023 global growth outlook on Tuesday, citing the impact of higher interest rates, which negatively affect oil demand.
Monthly reports from the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency are due on Thursday and Friday, respectively, with the market waiting for clarity on oil demand and supply.
On Tuesday, the US Energy Information Administration cut its forecast for oil production by OPEC countries by 0.5 million barrels per day for the rest of 2023 and cut its 2023 world oil demand growth forecast by 40,000 bpd.