This week the U.S. was not only faced with a polar vortex but the price of oil is on track for short-term gains with a possible spike in prices we saw last November. There are a few contributing factors to the recent boost that are highlighted below.
- Federal Reserve’s announcement:
Federal Chair, Jerome Powell stated that economic growth remained “solid,” however, “the case for raising rates has weakened somewhat.” This statement contributed to strong gains for oil prices on Wednesday and Thursday. Lower-than-expected interest rates will stoke the economy and a more timid outlook on rates will weaken the dollar, which historically has an inverse relationship with oil prices.
- Saudi Arabia & OPEC cuts
News broke this week that Saudi Arabia slashed shipments to the U.S. by 54% last week, down to just 442,000 bpd, the lowest in two years. OPEC’s production as a whole declined by 890,000 bpd in January, according to Reuters, the largest monthly decline in two years. It’s apparent that the OPEC+ production cuts of 1.2 mb/d are being phased in.
- Venezuela Outage
Recent U.S. Sanctions on the Venezuelan state oil firm PDVSA are keeping tankers stuck at ports and expected to accelerate the supply drop in February.
A “perfect storm” is beginning to form if you consider the OPEC cuts, U.S. sanctions on Venezuela and Iran and now the Federal Reserve potentially backing off interest rate hikes. With all of these events unfolding at the same time, it’s paving the way for more price increases in the near future.