Crude Oil News Today: Prices Pressured by Fed’s Hawkish Tone, Inventory Shock

James Hyerczyk
Published: May 23, 2024, 10:02 GMT+00:00

Key Points:

  • Concerns over potential Fed rate hikes limit crude oil gains, impacting demand forecasts.
  • Energy Information Administration (EIA) reports a surprising 1.8 million-barrel increase in crude inventories.
  • Fed's strategy for disinflation may delay achieving the 2% inflation target, affecting economic growth.
Crude Oil News Today

In this article:

Fed’s Potential Rate Hikes Impact Crude Oil Market

Crude oil experienced mixed performance on Thursday as concerns over potential interest rate hikes by the U.S. Federal Reserve put a lid on gains. Minutes from the latest Fed policy meeting revealed discussions about possible future rate hikes, driven by persistent inflation concerns. This development has significant implications for crude oil demand, particularly in the world’s largest oil-consuming nation.

At 09:41 GMT, Light Crude Oil futures are trading $77.81, up $0.24 or +0.31%.

Fed Minutes Highlight Rate Hike Possibility

Minutes from the Fed’s recent meeting indicated a cautious stance on inflation, with officials expressing willingness to tighten monetary policy further if necessary. This uncertainty about the current interest rate’s effectiveness in controlling inflation has led to heightened concerns about economic growth and, consequently, oil demand. Higher borrowing costs tend to restrict economic activity, reducing funds available for consumption and investment, which in turn can dampen oil demand.

Unexpected Rise in U.S. Crude Inventories

The Energy Information Administration (EIA) reported an unexpected increase in U.S. crude oil inventories by 1.8 million barrels last week, against expectations of a 2.5 million-barrel draw. This rise, attributed to a significant adjustment for unaccounted barrels, suggests a softer demand environment. Conversely, gasoline stockpiles fell by 945,000 barrels, indicating robust demand ahead of the summer driving season.

Global Market Pressures

Globally, physical crude markets are facing downward pressure from soft refinery demand and ample supply. Despite the seasonal uptick in gasoline consumption, the overall market sentiment remains cautious due to the macroeconomic backdrop influenced by Fed policies and inflationary trends.

Fed’s Disinflation Efforts and Market Outlook

Fed officials maintained that achieving the 2% inflation target would take longer than previously anticipated. This stance reflects increased uncertainty about the pace of disinflation and the effectiveness of current interest rates. Despite some signs of easing inflation and softening demand, the overall economic outlook remains mixed.

Market Forecast

Given the Fed’s indication of potential rate hikes and the unexpected rise in crude inventories, the short-term outlook for crude oil remains bearish. Traders should anticipate continued volatility as the market reacts to economic data and Fed policy signals. The interplay between inflation concerns, interest rates, and crude oil demand will be crucial in shaping market conditions in the coming weeks.

Technical Analysis

Daily Light Crude Oil Futures

Light crude oil futures are edging higher on Thursday, but remain on the bearish side of the intermediate and long-term moving averages. However, it’s still holding above the short-term swing bottom.

The short-term range is $76.21 to $80.11. Its 50% level or pivot is at $78.16. The 200-day moving average is at $78.20. This forms the resistance cluster at $78.16 to $78.20 that is capping gains today.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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