Oil prices shot higher on Thursday, adding to their gains from Wednesday’s session as a weaker U.S. dollar helped boost commodity prices.
Price action
-
West Texas Intermediate crude for January
CL00,
+2.36%CL.1,
+2.36%
gained $1.43, or 2%, to $70.90 a barrel on the New York Mercantile Exchange. -
February Brent crude
BRN00,
+2.36%BRNG24,
+2.36%,
the global benchmark, gained $1.53, or 2.1%, to $75.92 a barrel on ICE Futures Europe. -
January gasoline
RBF24,
+2.35%
gained 2.2% to $2.070 a gallon, while January heating oil
HOF24,
+1.09%
rose by 1.6% to $2.588 a gallon on Nymex. -
Natural gas for January delivery
NGF24,
+2.18%
increased by 1.5% to $2.37 per million British thermal units.
Market drivers
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.
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 of shorts has also 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.”
The U.S. dollar continued to weaken Thursday, with the ICE U.S. Dollar Index
DXY,
a popular gauge of the dollar’s strength compared with its main rivals, fell 0.5% to 102.38.
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