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Oil Prices Are Increasingly Influenced By U.S. Economic Data

U.S. West Texas Intermediate crude oil futures finished lower on Thursday after giving up earlier gains.

Helping to put a lid on prices was a rise in the U.S. Dollar, which strengthened after fresh economic reports suggested the Federal Reserve would have to raise rates for longer than previously anticipated.

Sellers may have also been influenced by a massive build in U.S. crude oil stockpiles reported on Wednesday although prospects for a Chinese demand recovery likely offset this news.

Traders Tracking U.S. Economic Reports Closely

The price swings in the market this week strongly suggest that the crude oil market has become data dependent. Not just the traditional supply/demand numbers but also U.S. economic data that has a strong influence on Fed policy.

Throughout the week, including Thursday’s stronger-than-expected producer price index (PPI) report, hot economic data has been signaling to traders that the Federal Reserve has to continue to raise interest rates or risk losing control over inflation.

This is driving up Treasury yields, while boosting the U.S. Dollar. Since crude oil is a dollar-denominated asset, foreign demand for the asset tends to weaken.

In addition to the strong economic news, a gauge of manufacturing in the mid-Atlantic region unexpectedly plunged. This led to increased worries about a recession, which would also put a dent in demand.

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