Oil closes higher, with US reserves falling, Fed decision and dollar

Oil futures contracts closed higher on Wednesday, 2nd, in a session attentive to the greater-than-expected decline in the commodity’s inventories in the United States. In addition, the monetary policy decision of the Federal Reserve (Fed, the American central bank) was observed for the market, and one of the repercussions was a devaluation of the dollar. As oil is quoted in US currency, the movement tends to boost prices per barrel.

December WTI crude closed up 1.84% ($1.63) at $90.00 a barrel on the New York Mercantile Exchange (Nymex), while Brent for January 2023 rose 1.59 % (US$1.51), at US$96.16 a barrel, on the Intercontinental Exchange (ICE).

Oil inventories in the United States fell by 3.115 million barrels to 436.83 million in the week ended October 28, the US Department of Energy (DoE) said today. Analysts consulted by The Wall Street Journal expected a drop of 200,000 barrels. According to Capital Economics, last week’s drop in commercial and strategic inventories dragged total reserves to their lowest level since November 2001, thus contributing to the rise in prices today.

The consultancy also recalls that inventories of gasoline and distillates also remained low. In his view, together, high oil prices and a mild recession should weigh on demand in the coming months. Meanwhile, crude oil production in the country fell from 12 million barrels per day (bpd) to 11.9 million.

Capital Economics suspects that the rise in futures and longer-term prices this year will contribute to an approximately 500,000 increase in production by the end of next year. However, “we don’t see US production rising to its pre-pandemic level of around 13 million bpd anytime soon due to ongoing capital discipline by oil companies,” he said. Meanwhile, President Joe Biden continues to criticize the stance of companies in the sector.