Oil Prices Rebound as Federal Reserve Keeps Interest Rates Steady
Oil prices rebounded on Thursday, gaining 1% after a three-day decline, as risk appetite returned to financial markets following the U.S. Federal Reserve’s decision to keep benchmark interest rates on hold. Brent crude futures rose by 91 cents, or 1.08%, to $85.54 a barrel, while U.S. West Texas Intermediate crude futures increased by 83 cents, or 1.03%, to $81.27 a barrel.
The rally in oil prices mirrored gains across financial assets after the Fed’s announcement that it would maintain its benchmark interest rate at 5.25%-5.50% during its latest meeting on Wednesday. The decision was welcomed by asset markets, leading to a positive response in oil prices. Callum Macpherson, head of commodities at Investec, stated, “Asset markets reacted positively to the Fed yesterday, and I think oil has followed that by moving a bit higher.”
Meanwhile, U.S. policymakers grappled with determining whether financial conditions are already tight enough to control inflation or if the economy, which continues to outperform expectations, requires further restraint. The Bank of England, on the other hand, held interest rates steady at 5.25% during its latest meeting on Thursday. This decision marked the second consecutive month of steady rates after 14 consecutive hikes. Governor Andrew Bailey emphasized that while the bank does not anticipate rate cuts in the near future, it will maintain high interest rates to bring inflation back to the 2% target.
In the United States, new unemployment claims in the week ending October 28 slightly increased to 217,000. However, the data released by the Labor Department showed few signs of a significant slowdown, indicating the resilience of the world’s largest economy. Tamas Varga, an analyst at broker PVM, noted, “The world’s biggest economy remains resilient. That much was acknowledged by the Fed as they left benchmark rates untouched.”
In Europe, manufacturing activity in the euro zone contracted further in October, with its Purchasing Managers’ Index (PMI) falling by 0.3 points to 43.1. A score below 50 indicates contraction. This data raises concerns about the economic health of the region.
Additionally, investors are closely monitoring the situation in the Middle East, which has been creating uncertainty in oil markets due to the potential disruption of supplies. The ongoing fighting around Gaza City between Israeli tanks and Hamas militants has heightened tensions in the region.
As oil prices rebound, investors and analysts will continue to assess the impact of various factors, including monetary policies, economic performance, and geopolitical conflicts, on the future of the oil market.
Reporting by Robert Harvey, Stephanie Kelly, and Muyu Xu; Editing by Robert Birsel and Jan Harvey
More detail via Yahoo! Finance here… ( Image via Yahoo! Finance )