Crude Oil Continues to Rise Amidst Weaker USD and Reduced Supply
Today, Federal Reserve Chair Jerome Powell will speak before the Senate Banking Committee at his confirmation hearing, and is set to tell senators that the Fed will use the economic tools at their disposal to prevent recent high inflation from becoming entrenched.
Although this speech will make no mention of specific plans for how this will be achieved, afterwards, he will take questions from senators, and investors will be paying close attention for any hints about Fed policy in the coming months.
Ahead of the confirmation hearing, on Tuesday morning, the US dollar index, which measures the dollar against six of its rival currencies, was down around 0.2%. On the other hand, gold, which enjoys an inverse relationship with the US dollar, was up by 0.45%, hovering around $1,810 an ounce.
Another commodity which benefitted from a slightly weaker USD was crude oil, which also rose on Tuesday morning.
Brent crude dropped sharply in November amidst concerns that the emergence of a new Covid-19 variant, Omicron, may lead to renewed social restrictions, which, in turn, would be detrimental to demand for oil.
However, as the signs have continued to look increasingly positive, and most of the world’s major economies do not appear to be considering strict lockdowns like we saw in 2020, the price of oil has responded accordingly. Since the beginning of December, the price of Brent has been following an upwards trajectory, closing above $80 a barrel last week and recovering its pre-Omicron levels.
As well as a weaker dollar, oil prices are currently being supported by tight OPEC+ supply, which is lagging behind increasing demand. Furthermore, already restricted supply from OPEC+ is currently running below its agreed quota as some members, such as Nigeria, are not producing their agreed volume.
OPEC+ member Libya, which is not bound by the organisation's supply curbs, has also had their supply impacted by recent pipeline maintenance and oil field disruptions.
This evening, at 21:30 GMT, the American Petroleum Institute (API) will release data regarding US oil inventory. US crude stockpiles are expected to fall for the seventh consecutive week by an anticipated 2 million barrels. A larger than expected decrease could see crude oil prices push higher still.
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