Oil Price Falls 3% on Fed Statement but Recovers Ground Thursday

on Dec 15, 2016

Oil prices lost over 3% in the U.S. trading session Wednesday following the Fed’s announcement that as well as an immediate 0.25% hike to interest rates an addition 3 similar rises were seen over the course of 2017. With the dollar strengthening considerably on the announcement, to a 14-year high, oil price plunged with brent crude down 3.27% to $53.9 a barrel and WTI down 3.66% to $51.04.

However, Thursday has seen oil price resume an upward trend to recover at least a part of those losses. WTI gained $0.2 back to $51.24 a barrel with brent crude back up to $54.35, having gained $0.4. Analysts are expressing the opinion that despite the likelihood the U.S. dollar may continue to strengthen into 2017 markets seem to have faith in the output cuts of 1.8 million barrels a day from January 1st that OPEC and 11 non-OPEC oil exporters have committed to. Quoted by Reuters, ANZ Bank has said in a note to clients that that output reduction should lead to a ‘substantial’ supply deficit over the first part of 2017. This would be expected to push oil prices to ‘well above’ $60 a barrel early next year.

One less positive piece of news relating to the successful implementation of supply cuts, which oil exporters have a history of reneging on or manipulating, is an Iraqi oil-loading schedule seen by The Wall Street Journal. The schedule, dated 8th December, apparently shows that SOMO, Iraq’s state-owned oil marketing company, plans to ship 3.53 million bpd of its Basra export grade oil in January. This is 7% up from October 2016 volumes and Basra export grade oil accounts for 85% of Iraq’s crude exports. It would also be an increase of 390,000 barrels a day on December exports of Basra export grade oil.

While export volumes don’t necessarily move precisely in line with output volumes due to existing inventories, other OPEC nations have been reducing their January export volumes to reflect output cuts, raising doubts as to how committed Iraq is to the deal.
Meanwhile, gold price also dropped sharply following yesterday’s Fed announcement. With higher interest rates designed to combat accelerating inflation, a positive for gold, the spot price of gold dropped to $1141 oz, down from $1164, losing $23 an ounce. Trading this morning saw another $3 shaved from the price, with spot gold down to $1138. Spot silver price lost 1.5% yesterday and has fallen another 0.5% today, down to $16.73 oz.
While precious metals have suffered on the Fed’s policy statement, base metals were bullish ahead of the announcement and have since consolidated, mostly modestly up or down on yesterday’s prices. Zinc price added 3.7% yesterday and has slipped on very marginally today, by around 0.3% today. Aluminium and tin are slightly up today, adding 0.2% each with copper slipping 0.1% and lead and nickel 0.4%.

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