The price of oil rose by about 1.5%, helped by the weakening of the US currency, the latest data on oil reserves in the United States, stimulus measures announced by the Chinese government, as well as ongoing geopolitical tensions in the Middle East. Experts said that oil is now showing signs of breaking higher, out of the narrow band it has traded in all year.
The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) fell by 0.09% to 103.17.
Yesterday, the U.S. Energy Information Administration (EIA) said that crude inventories plunged by 9.233 million barrels in the week ended January 19, and reached their lowest level since October. This also marked the steepest weekly decline since the week ended August 25. Economists had predicted a decrease of 2.150 million barrels. At the same time, gasoline stocks surged by 4.913 million barrels. Analysts had foreseen a rise of 2.300 million barrels. Distillate stocks declined by 1.417 million barrels, recording the first weekly drop in nine weeks. Analysts had forecast a build of 0.348 million barrels. Meanwhile, the winter storms caused a 1 million-bpd drop in crude production to 12.3 million bpd (5-month low). It was the biggest drop since September 2021.
As for the situation in the Middle East, economists at Citigroup Inc. warned that Brent crude could reach $90 per barrel if tensions rise, although the bank said this was not its baseline scenario.
Oil prices also received support from hopes for China's economic recovery. Yesterday, the Central Bank of China announced that from February 5 it would reduce the amount of cash that banks must keep as reserves. The reserve requirement ratio (RRR) for all banks will be reduced by 50 basis points, which would free up 1 trillion yuan to the market. This is the largest such reduction since December 2021 and it follows earlier cuts of 25 bps for all banks in March and September last year.