Oil prices climbed sharply on Thursday to post their highest settlement in more than a week as a decline in the U.S. dollar helped boost commodity prices.
Price action
-
West Texas Intermediate crude for January
CL00,
+0.49% CL.1,
+0.49%
gained $2.11, or 3%, to settle at $71.58 a barrel on the New York Mercantile Exchange. -
February Brent crude
BRN00,
+0.52% BRNG24,
+0.52% ,
the global benchmark, gained $2.35, or 3.2%, to $76.61 a barrel on ICE Futures Europe. Based on the front-month contracts, Brent and WTI oil settled at their highest levels since Dec. 5, according to Dow Jones Market Data. -
January gasoline
RBF24,
-0.16%
gained 4.6% to $2.12 a gallon, while January heating oil
HOF24,
+0.20%
rose by 1.7% to $2.59 a gallon on Nymex. -
Natural gas for January delivery
NGF24,
-0.88%
increased by 2.4% to settle at $2.39 per million British thermal units.
Market drivers
Oil prices extended their rally into a second straight session after Wednesday’s Federal Reserve decision, with the central bank signaling plans to cut interest rates three times next year.
Read: Powell surprises with a dovish turn; economists debate how many Fed rate cuts in 2024
The Fed’s policy statement and projections exhibited an unmistakably dovish tone, market analysts said, which sent the U.S. dollar and Treasury yields sliding. Commodity prices are rallying as a result — they often benefit from a weaker U.S. dollar, because commodities sold around the world are typically priced in dollars.
The U.S. dollar continued to weaken Thursday, with the ICE U.S. Dollar Index
DXY,
a popular gauge of the dollar’s strength against its main rivals, falling 0.9% to 101.994.
“The recent crash in oil prices, which OPEC says was driven by ‘exaggerated concerns’ about demand, has been a major factor in allowing the Fed to signal that the rate-hiking cycle is over,” Phil Flynn, senior market analyst at the Price Futures Group, said in a daily report.
According to the Fed Fund Futures at the CME group, the door is open to perhaps three rate cuts in the new year. “That puts stocks at an epic risk-on rally that looks almost scary and a big surge back in commodities that were recently depressed about the way the world was going,” Flynn said.
Read The Year Ahead: Why oil may not see a return $100 a barrel in 2024
Wednesday’s Fed decision has broad consequences for markets, and traders are largely ignoring a report from the International Energy Agency that warned that weak demand will likely persist, alongside increasing supply by non-OPEC+ countries. The agency revised its demand forecast lower by 400,000 barrels a day compared with its previous estimate, released a month earlier.
After oil prices recorded their longest stretch of declines since 2018, traders covering shorts helped propel prices higher, said Ole Hansen, head of commodity strategy at Saxo Bank.
“Crude-oil prices trade higher on short covering driven by a combination of a weaker dollar, sharply lower yields and the prospect of lower rates next year,” Hansen said. “Positioning in recent weeks has increasingly been geared toward lower prices, and with the [Federal Open Market Committee] pivoting toward rate cuts, we may potentially have seen the low point in oil for now.”
Read: Here’s what the COP28 pact to phase out fossil fuels means for oil
Also see: EIA expects power from solar, wind generation to top coal next year
Natural-gas futures, meanwhile, held onto early gains to finish higher after the Energy Information Administration reported Thursday that U.S. natural-gas supplies in storage fell by 55 billion cubic feet for the week ending Dec. 8. That matched the average weekly decline forecast by analysts surveyed by S&P Global Commodity Insights.
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