Traders expect the Federal Reserve to end its rate hikes in two months, which could push oil prices higher due to the generally inverse relationship between rates and oil prices.
According to a Reuters report, the Fed might end its rate-hike policy as soon as March, as economic indicators suggest inflation is slowing down and getting under control. What’s more, the Fed is set to announce another hike in benchmark rates this week but it may be lower than previous ones, at 25 basis points.
Oil prices climbed last week on the positive economic data coming out of the United States, although Treasury Secretary Janet Yellen has warned that a soft landing was far from certain and there was still a danger of recession.
Coupled with expectations for a rebound in oil demand in China, a lower rate hike and any other indication that the Fed may be preparing for a wind-down of its aggressive inflation control measures could lend additional upward potential to oil prices.
There has also been added support for prices from the reported drone attacks on targets in Iran, suggesting a possible escalation in Middle Eastern tensions. The reports pushed oil prices higher in morning trade in Asia today, although prices have since fallen back.
Some stability could come from the OPEC+ meeting this week as there are no expectations of any tweaks to the current policy of the extended cartel, with many members still unable to fulfill their production quotas even with their reduction last year.
China remains the biggest bullish factor for oil prices, however, especially after the government in Beijing said over the weekend it would aim to stimulate consumption as a means of boosting economic growth after the lockdowns.
Uncertainty remains, however. “We have Russia on the supply side and China on the demand side. Both can swing by more than 1 million barrels per day above or below expectation,” one investment manager told CNBC.
“China seems to have surprised the market in terms of how fast they are coming out of zero Covid while Russia has surprised in terms of resilience of export volume despite the sanctions,” Stefano Grasso said.
By Charles Kennedy for Oilprice.com