Oil prices shot higher on Thursday, adding to their gains from Wednesday’s session as a weaker U.S. dollar helped boost commodity prices.
West Texas Intermediate crude for January
gained $2.54, or 3.7%, to $71.01 a barrel on the New York Mercantile Exchange.
February Brent crude
the global benchmark, gained $2.63, or 3.5%, to $76.89 a barrel on ICE Futures Europe.
gained 3.8% to $2.102 a gallon, while January heating oil
rose by 2.2% to $2.604 a gallon on Nymex.
Natural gas for January delivery
increased by 2.1% to $2.385 per million British thermal units.
Oil prices are continuing their rally following Wednesday’s Federal Reserve decision, which saw the central bank declare its plans to cut interest rates three times next year.
The Fed’s policy statement and projections exhibited an unmistakably dovish tone, market analysts said, which sent the U.S. dollar and Treasury yields sliding. Commodity prices are rallying as a result as they often benefit from a weaker U.S. dollar, since commodities sold around the world are typically priced in dollars.
The U.S. dollar continued to weaken Thursday, with the ICE U.S. Dollar Index
a popular gauge of the dollar’s strength compared with its main rivals, fell 0.9% to 101.905.
“The recent crash in oil prices, which OPEC says was driven by ‘exaggerated concerns’ about demand, has been a major factor in allowing the Fed to signal that the rate hiking cycle is over,” Phil Flynn, senior market analyst at The Price Futures Group, said in a daily report.
According to the Fed Fund Futures at the CME group, the door is open to perhaps three rate cuts in the new year. “That puts stocks at an epic risk-on rally that looks almost scary and a big surge back in commodities that were recently depressed about the way the world was going,” said Flynn.
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Wednesday’s Fed decision has broad consequences for markets and traders are largely ignoring a report from the International Energy Agency, which warned that weak demand will likely persist, alongside increasing supply by non-OPEC+ countries. The agency revised its demand forecast lower by 400,000 barrels a day compared with its previous estimate released a month earlier.
After oil prices recorded their longest stretch of declines since 2018, traders covering shorts helped propel prices higher, said Ole Hansen, head of commodity strategy at Saxo Bank.
“Crude oil prices trade higher on short covering driven by a combination of a weaker dollar, sharply lower yields and the prospect of lower rates next year,” Hansen said. “Positioning in recent weeks has increasingly been geared towards lower prices and with the FOMC pivoting towards rate cuts, we may potentially have seen the low point in oil for now.”
Natural-gas futures, meanwhile, held onto early gains after the Energy Information Administration reported Thursday that U.S. natural-gas supplies in storage fell by 55 billion cubic feet for the week ended Dec. 8. That matched the average weekly decline forecast by analysts surveyed by S&P Global Commodity Insights.