February crude oil futures fluctuated between gains and losses this week as investors reacted to the latest economic reports and the U.S. Federal Reserve’s decision to begin reducing its monthly monetary stimulus.
Despite the Fed’s decision to taper and the stronger U.S. Dollar, crude oil prices continued to climb as investors expressed optimism about the U.S. economic recovery. The strengthening economy should lead to stronger demand which in turn would help take care of the high inventory figures.
Crude oil has risen 10 of the previous 14 trading sessions which puts it in the category of strong and decisive. The market even rallied after the Fed announced its decision to trim $10 billion of the $85 billion in monthly monetary stimulus. Many traders were hesitating about playing the long side of the market because an early tapering by the Fed was expected to trigger a surge in the U.S. Dollar which was expected to lead to a drop in foreign demand. Crude traders looked the other way, however, and bought the market as a sign that they believe the stronger economy will increase demand enough to offset the expected drop in foreign demand.
Also helping to underpin the market was the third consecutive weekly drop in supply according to the Energy Information Administration. The EIA reported a decline of 2.9 million barrels last week. Investors were pricing in a 4.0 million barrel increase. Crude oil stocks, however, remain at their highest level…