. Oil Prices Rally 1% Following Federal Reserve's Rate Stance

Oil Prices Rally 1% Following Federal Reserve’s Rate Stance.

Oil Prices Rally 1% Following Federal Reserve’s Rate Stance.

02 Nov 2023

 Crude oil prices increased by 1% after Fed rates unchanged.

Oil prices rose by 1% on Thursday, marking a turnaround from a three-day decline. This increase was spurred by a return of risk appetite in financial markets, following the U.S. Federal Reserve’s decision to keep its benchmark interest rates unchanged.

Brent crude futures surged by $1.03, or 1.22%, to reach $85.66 per barrel around 1149 GMT, while U.S. West Texas Intermediate crude futures gained $1.02, or 1.27%, reaching $81.46 per barrel.

The oil market’s rally mirrored the positive momentum in other financial assets, which reacted favorably to the Federal Reserve’s decision to maintain its benchmark interest rate within the range of 5.25% to 5.50% during its latest meeting on Wednesday.

Callum Macpherson, the head of commodities at Investec, noted, “Asset markets reacted positively to the Fed yesterday, and I think oil has followed that by moving a bit higher.”

The Federal Reserve’s policymakers faced the challenge of assessing whether financial conditions were already tight enough to control inflation or if the economy’s continued outperformance required further restraint.

U.S. inflation remained at 3.4% in September for the third consecutive month. Tamas Varga, an analyst at broker PVM, stated, “There is still some way to go to achieve the 2% target; nonetheless, monetary tightening has been working effectively, and additional rate increases would probably do more harm than good.”

In Europe, there was a deepening contraction in manufacturing activity within the eurozone in October, with the Purchasing Managers’ Index (PMI) falling by 0.3 points to 43.1. A PMI score below 50 indicates a contraction.

On the same day, the Bank of England was expected to maintain interest rates without making changes. Additionally, market participants were closely monitoring developments in the Middle East, as concerns persisted about the potential for a broader conflict disrupting oil supplies in the region. Fighting continued in and around Gaza City, with Israeli forces encountering fierce resistance from Hamas militants.