Oil rides higher for third consecutive day as Fed rate cut expectations support demand outlook

• WTI Oil heads towards $74 as the Federal Reserve’s dovishness brightens the demand outlook. 
• Oil outlook could confirm OPEC latest report as a pickup in economic activity is foreseen for the first half of 2024.
• The DXY US Dollar Index trades steady at a near four-month-low, though it could turn around.

Oil prices rally for a third day in a row,, fueled by the outcome of Wednesday’s US Federal Reserve meeting and Chairman Jerome Powell’s dovish remarks.  The Fed has confirmed to markets that rate cuts are coming in 2024, a sign that markets wanted to see. Lower interest rates ahead  could mean a push in sentiment and economic activity, triggering an increase in demand for Crude. 

Meanwhile, the US Dollar (USD) has lost over 2% of its value when gauged by the US Dollar Index (DXY) since Wednesday. The European Central Bank (ECB) surprised markets by not committing to rate cuts and mentioning cuts were not even an option. With still positive US economic data and the Fed ready to cut in 2024, the US economic outlook has brightened. Meanwhile, economic activity in the Eurozone has been stagnant for months and  the ECB isn’t committed to cutting interest rates in 2024.

Crude Oil (WTI) trades at $72.20 per barrel and Brent Oil trades at $77.08 per barrel at the time of writing. 

Oil News and Market Movers: Central Banks done for 2023

• On Thursday, major central banks released their last monetary policy decision of the year. The Swiss National Bank (SNB), the European Central Bank (ECB), and the Bank of England (BoE) opted to keep rates unchanged at current levels. The ECB and the BoE rejected talks of upcoming interest-rate cuts, contrary to the Fed’s message on Wednesday. 
• Total Energies bought three WTI Midland cargoes, and has been bidding on three more cargoes for delivery in early January. 
• Macquarie Group issued a report saying that WTI and Brent will settle near the high $60’s to low $70s level for the first quarter of 2024.
• At 18:00 GMT, the weekly Baker Hughes US Oil Rig Count data will be released. Previous was at 503.

Oil Technical Analysis: The more cuts, the better for Oil

Oil prices could get some help, but not from OPEC+. Commodities are gaining ground as investors dissect the message from the Fed on rate cuts. Rate cuts mean lower interest rates, and thus more spending, growth, production, and more demand for commodities. Who would have thought last week that the Fed would be the one to save Oil from falling below $67, and not OPEC. 

On the upside, $74 is the first hurdle that needs to be taken back by Crude bulls. Once through there, $80 comes into the picture. Although still far off, $84 is next on the topside once Oil sees a few daily closes above the $80 level. 

Still, Oil is not out of the woods yet. The $67.00 level could still come into play, which aligns with a triple bottom from June, as the next support level to trade at. Should that triple bottom break, a new low for 2023 could be close at $64.35 – the low of May and March – as the last line of defence. Although still quite far off, $57.45 is worth mentioning as the next level to keep an eye on if prices were to fall sharply.. 

US WTI Crude Oil: Daily Chart