Oil prices buoyed by dollar weakness as central banks take focus

By Ambar Warrick 

Investing.com-- Oil prices recovered a measure of recent losses on Thursday as weakness in the dollar benefited commodity buyers, with markets now awaiting more cues from central bank meetings in Europe and the U.K. 

Crude prices plummeted on Wednesday after the Federal Reserve hiked rates as expected and signaled that it plans to keep raising interest rates in the coming months, as it battles elevated inflation. 

This saw markets pricing in a greater possibility of a U.S. economic slowdown this year, which bodes poorly for oil demand.

But the possibility of a recession also weighed on the dollar, as traders bet that slowing economic growth is likely to push the Fed into reversing its hawkish stance later this year. The greenback tumbled to an over nine-month low against a basket of currencies. 

A weaker dollar benefits crude markets by making the commodity cheaper for international buyers.

Brent oil futures rose 0.2% to $83.16 a barrel, while West Texas Intermediate crude futures rose 0.5% to $76.84 a barrel by 20:48 ET (01:48 GMT). Both contracts plummeted by as much as $3 on Wednesday, following the Fed decision.

Crude markets have struggled so far in 2023 amid persistent concerns over an economic slowdown this year, while uncertainty over a recovery in Chinese demand also weighed. 

Markets are now awaiting interest rate hikes from the European Central Bank and the Bank of England later in the day. Both banks are expected to hike rates by 50 basis points each and signal more policy tightening- a scenario that increases the chances of a global economic slowdown this year. 

Fears of a near-term U.S. supply glut dented oil prices this week, as government data showed that U.S. crude stockpiles jumped more than expected to a 20-month high in the week to January 27. 

The Organization of Petroleum Exporting Countries and its allies (OPEC+) also kept its production levels unchanged during a meeting on Wednesday, offering little near-term support to prices.

Economic data from China offered a mixed view on a recovery in the world’s largest oil importer. While business activity has certainly improved after the country lifted most anti-COVID restrictions earlier this year, private data showed this week that some facets of the economy are still struggling to navigate a spike in COVID-19 cases.  

The COVID-19 outbreak has also resulted in uncertainty over when the Chinese economy could recovery from a pandemic-driven slump. But a Chinese recovery is still expected to propel crude demand to record highs this year.