Following days of falling prices, U.S. benchmark crude oil prices are trading up 3% on Wednesday on sentiments of tight supply and signals from the Federal Reserve that we can still anticipate interest rate cuts in 2024.
At 11:40 a.m. ET on Wednesday, West Texas Intermediate (WTI) was trading up 3.13% at $80.60, breaking the $80 threshold, while Brent crude was trading up 2.43% at $84.03.
Earlier on Wednesday, Saudi Arabia announced it would raise prices of crude oil to Asia just days after OPEC+ extended its 2.2-million-barrel-per-day voluntary output cuts through Q2.
The price for the country's flagship Arab Light grade was raised by $0.20 per barrel over the Oman/Dubai average, meaning April deliveries will cost $1.70 per barrel more than the Oman/Dubai average, up from $1.50 per barrel this month.
The output cuts were endorsed by OPEC+ in November, with Saudi Arabia leading by example by extending its own voluntary reduction. OPEC+ has been implementing successive output reductions since late 2022 to stabilize the market amidst heightened production from non-member producers like the United States, coupled with concerns regarding demand due to elevated interest rates in major economies.
Also on Wednesday, Federal Reserve Chairman Jerome Powell told Congress that while he still needed more evidence that inflation was on the downward trend, the Fed was anticipating cutting rates later this year.
Middle East tensions, including a standoff in Israel-Hamas ceasefire talks, continued attacks on Red Sea vessels and an intensified situation on the Israel-Lebanon border may also be contributing to higher oil prices somewhat.
The upward momentum in oil prices on Wednesday follows the American Petroleum Institute (API) inventory report on Tuesday, which showed a smaller-than-expected increase of 423,000 barrels for the week ended March 1. The increase also preceded the inventory report from the Energy Information Administration (EIA) Wednesday at 10:30 a.m. ET, showing a build of 1.4 million barrels for the week to March 1.
Finally, contributing to tight supply sentiment in the short term, Reuters reported on Wednesday that U.S. oil refiners expect to have 1.5 million bdp of capacity offline for the week ending March 8.
By Tom Kool for Oilprice.com
Tom majored in International Business at Amsterdam’s Higher School of Economics, he is Oilprice.com's Head of Operations More