Oil prices advanced in Asian trade on Thursday, supported by a weaker dollar following the Federal Reserve’s indication of potential interest rate cuts in 2024. Additionally, the prospect of tighter supplies continued to bolster crude prices.
Brent oil futures expiring in May increased by 0.5% to reach $86.41 a barrel, while West Texas Intermediate (WTI) crude futures rose by 0.5% to $81.15 a barrel by 21:47 ET (01:47 GMT). Both contracts remained near over four-month highs recorded earlier in the week.
The primary support for crude prices on Thursday stemmed from a decline in the dollar. The dollar index dropped by 0.6% from a two-week high after Federal Reserve Chair Jerome Powell suggested that the Fed was considering cutting interest rates by three quarters of a percentage point this year.
Despite Powell expressing concerns about persistent inflation, he also emphasized the resilience of the U.S. economy. The Fed revised its quarterly economic projections, anticipating a substantial growth of 2.1% in 2024, up from the previous forecast of 1.4%.
The combination of lower interest rates and a robust U.S. economy is favorable for demand in the world’s largest fuel consumer, especially as the spring season approaches.
Furthermore, expectations of tighter oil supplies remained prominent, supported by official U.S. inventory data released on Wednesday. The data revealed a greater-than-expected decline in crude oil inventories during the week ending March 15, attributed to increased refinery activity and higher oil exports. Additionally, a larger-than-anticipated draw in gasoline inventories indicated a resurgence in fuel demand following a winter lull.
The shrinking U.S. inventories, along with the potential for supply disruptions in regions like Russia and the Middle East, contributed to a tighter outlook for global crude markets in 2024. Moreover, major producers within the Organization of the Petroleum Exporting Countries (OPEC) were observed reducing exports in March, further supporting the supply-side dynamics.