Oil prices experienced a modest increase on Thursday, February 1, propelled by signals from the U.S. Federal Reserve indicating a potential initiation of interest rate cuts in the upcoming months. Following a two-day Federal Open Market Committee (FOMC) meeting, the Federal Reserve unanimously voted to maintain the benchmark interest rates at 5.25 per cent – 5.50 per cent, aligning with market expectations.
Brent crude futures saw a rise of 61 cents, reaching $81.16 per barrel, while U.S. West Texas Intermediate crude futures increased by 62 cents, reaching $76.47, as reported by Reuters. On the Multi Commodity Exchange (MCX), crude oil futures slated for a February 16 expiry traded 0.7 per cent higher at ₹6,357 per bbl. The session witnessed fluctuations between ₹6,273 and ₹6,387 per bbl, compared to the previous close of ₹6,313 per barrel.
Factors Influencing Crude Oil Prices:
OPEC‘s Decision: Limited immediate impact occurred after sources within the Organization of Petroleum Exporting Countries (OPEC) suggested that the group would decide in March whether to extend voluntary oil production cuts implemented for the first quarter, maintaining the current 2.2 million barrels per day (bpd) reduction announced last November.
Federal Reserve’s Stance: Federal Reserve Chair Jerome Powell announced that interest rates had peaked and were anticipated to decrease in the coming months, driven by falling inflation and expectations of sustained economic growth. Lower interest rates and economic growth typically stimulate oil demand.
U.S. Economic Indicators: U.S. data released on Thursday revealed faster-than-expected growth in worker productivity in the fourth quarter, containing unit labor costs and providing the Federal Reserve additional support in addressing inflation concerns. Additionally, the stabilization of U.S. manufacturing in January and an increase in the Institute for Supply Management’s manufacturing PMI to 49.1, surpassing analysts’ estimates, contributed to market dynamics.
China’s Impact: In China, the world’s second-largest economy, new support measures were introduced to mitigate fallout from the liquidation of property developer Evergrande. Analysts project China to remain a significant contributor to global oil demand growth in 2024, with an expected increase of 530,000 bpd after a surge of 1.2 million bpd last year.
Middle East Tensions: Concerns over Yemen-based Houthi forces’ attacks on shipping in the Red Sea have led to increased costs and disruptions in global oil trading. The Houthi group declared its intent to continue attacks on U.S. and British warships in what it termed acts of self-defense, adding to geopolitical uncertainties affecting oil markets.