Oil Prices Rise as Fed Holds Interest Rates

Oil gains 1% after Fed keeps rates unchanged

Risk appetite returns to financial markets

Oil prices increased by 1% on Thursday, putting an end to a three-day decline. The rise came as risk appetite returned to financial markets following the U.S. Federal Reserve’s decision to keep benchmark interest rates unchanged.

Positive Momentum

The futures for oil rose by 82 cents to $85.45 a barrel, while U.S. West Texas Intermediate crude futures also advanced by 83 cents to $81.27 a barrel. Both benchmarks had reached multi-week lows in the previous session.

The rally in oil prices coincided with gains across other financial assets after the Federal Reserve announced that it would maintain its benchmark interest rate at 5.25%-5.50%. Policymakers are grappling with whether current financial conditions are tight enough to control inflation or if the economy needs further restraint.

The Pause and the Potential

“It is likely that the Fed will once again pause in December, keeping the door open for further hikes if necessary… This could potentially stabilize the risk-off movements experienced over the past few months,” said Jon Maier, chief investment officer at Global X ETFs.

Middle East Tensions

Investors are closely monitoring developments in the Middle East, which have kept them on edge due to the potential disruption of oil supplies in the region. Iran’s Supreme Leader Ayatollah Ali Khamenei called for Muslim states to cease oil and food exports to Israel, demanding an end to its bombardment of the Gaza Strip.

The Impact of Iran

Iran, a member of the Organization of the Petroleum Exporting Countries (OPEC), produced approximately 2.5 million barrels per day of crude in 2022. This announcement has added to the concerns about oil supply.

Market Watch

Market participants are also awaiting the outcome of a Bank of England meeting, which is expected to take place on Thursday. Additionally, October inflation in the euro zone was reported to be at its lowest level in two years, which suggests that the European Central Bank is unlikely to raise interest rates soon.

Global Oil Demand and U.S. Data

J.P.Morgan analysts estimated that global oil demand averaged 102.1 million barrels per day (bpd) in October, slightly below their previous projection for the month. Data from the U.S. Energy Information Administration (EIA) indicated that the country’s crude stocks increased as refiners undergoing seasonal maintenance restarted units more slowly than expected. However, U.S. gasoline stocks rose by 0.1 million barrels in the same period, according to the EIA.

Overall, the decision by the Federal Reserve to maintain interest rates has provided a boost to oil prices, while ongoing tensions in the Middle East continue to create uncertainty. Investors are closely monitoring various economic indicators and geopolitical developments to gauge the future direction of oil markets.