Oil Prices Climb Ahead of Fed Announcement

November 02, 2022 11:27

Today, at 18:00 GMT, the Federal Reserve is widely expected to increase interest rates by 75 basis points for the fourth time in a row.

As this is what is expected, it will have already largely been factored in to the price of assets. Perhaps more significant for traders and investors will be the press conference following the announcement.

There has been increased speculation recently that, following today’s rate decision, the Fed will begin to ease up on future rate hikes, which has improved sentiment in the equities market.  

Therefore, observers will be looking for any hint in the Fed’s comments as to whether they now intend to slow down their tightening of monetary policy, or whether they continue to strike a hawkish tone.

Ahead of today’s announcement, Wall Street closed yesterday’s session lower and the US dollar index was down this morning.

Conversely, oil prices have been moving in the opposite direction. Despite an uncertain economic outlook, Brent and WTI ended yesterday’s session higher and continued to climb in trading this morning.

Although they remain at high levels historically, oil prices have been following a downwards trajectory since June, amidst a worsening economic outlook. The recent support comes after a surprise drop in US crude oil inventories, which suggests demand remains elevated, as well as news that OPEC+ intends to cut supply and that China – the world’s second largest oil consumer – could start to ease Covid-19 restrictions.

Yesterday, oil and gas major BP reported third quarter profits which more than doubled year on year, although had dropped slightly from the previous quarter. They also announced a new share buyback programme worth $2.5 billion, which takes their total repurchases to over $10 billion so far this year.

Consequently, BP’s share price closed the session with a gain of 1.4%, taking its total gains for the year to more than 47%. Nevertheless, shareholders are likely to remain cautious in the face of a potential global recession, which would almost inevitably lead to a fall in oil prices. Therefore, if the Fed hints at further aggressive rate hikes this evening, then we are likely to see a negative reaction in the share prices of BP and their competitors.

Moreover, this latest set of bumper energy profits is almost certain to increase political pressure on governments for higher taxes on oil and gas profits, which would further weigh on share price.

Depicted: Admirals MetaTrader 5 – BP Weekly Chart. Date Range: 1 May 2016 – 2 November 2022. Date Captured: 2 November 2022. Past performance is not a reliable indicator of future results.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Roberto Rivero
Roberto Rivero Financial Writer, Admirals, London

Roberto spent 11 years designing trading and decision-making systems for traders and fund managers and a further 13 years at S&P, working with professional investors. He has a BSc in Economics and an MBA and has been an active investor since the mid-1990s