Oil Jumps 2% After Fed Chief’s Speech in Jackson Hole

Texas Intermediate benchmark WTI crude oil rose more than 2 percent after US Federal Reserve chief Jerome Powell spoke at a banking symposium in Jackson Hole. The Fed chief said that “the time has come” to cut interest rates, explaining that the US central bank wants to start acting before the labor market weakens further. Powell also stated that inflation has “decreased significantly,” and we are now very “close to our 2-percent target.”

“The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks,” Powell said. The Fed chairman also noted that “the upside risks to inflation have diminished.” while “the downside risks to employment have increased.”

“We will do everything we can to support a strong labor market as we make further progress toward price stability,” Powell added, noting that ”overall, the economy continues to grow at a solid pace.”

Powell’s speech also pushed up US Treasury bond prices. However, the stated position on interest rates, reiterated by Powell in Jackson Hole, began to put pressure on the dollar, which fell in value against other major currencies. Immediately after the Jackson Hole meeting, the euro soared to $1.12 for the first time since July 2023 and reached a high of $1.1196 at the close of trading on August 22, up from $1.1108, dropping to $1.1175 the following day. The pound also rose to its highest since March 2022, hitting 1.3230. The yen also strengthened from a level of 146.06 per dollar, to 144.93 yen per dollar.

Oil prices have been rangebound this week, recovering after the frenzy seen in the first two weeks of August, with ICE Brent settling in a narrow band between $76 and $78 per barrel.

Overall sentiment has been improving after the US Federal Reserve’s July meeting notes indicated September would be the most probable date for the much-anticipated interest rate cut. If Jackson Hole doesn’t disappoint, macroeconomics might lift oil even higher.

Here are some of the main factors that Michael Kern, chief oil markets analyst for the agency “Oilprice” believes are affecting the market:

A Greek-owned Suezmax tanker carrying Iraqi Basrah crude is adrift in the Red Sea after being attacked by Houthi militias as they claimed the operator company had ties with Israel, with the EU’s naval mission calling it a navigational and environmental hazard.

Leading US coal producers Arch Resources and Consol Energy will merge in an all-stock deal to create a mining giant valued at more than $5 billion, boosting an export capacity of 25 mtpa across two separate shipping terminals.

A Canadian rail strike that started this Thursday has been forcibly cut short by the federal government after it compelled labour unions and the CPKC and CN railroad companies into binding arbitration, under section 107 of the Canada Labour Code.

With Malaysia’s state oil firm Petronas withdrawing from South Sudan on the back of the ongoing civil war, the country’s state-run Nile Petroleum is to assume ownership of its assets in the country, once producing more than 150,000 b/d across six license blocks.

US oil major Chevron (NYSE:CVX) has been awarded a permit to evaluate an area of around 8,500 km2 in Western Australia’s offshore territory for potential CO2 storage projects, to be captured from its Wheatstone and Gorgon LNG liquefaction plants.

The Czech Republic’s Litvinov refinery operated by PKN Orlen has shut down production after an unexploded World War II was found in a remote part of the plant, with preliminary estimates suggesting the forced halt could take up to 2-3 weeks.

EU underground natural gas storage sites reached 90% of capacity this week, holding 1,025 TWh more than two months ahead of schedule, with central and eastern Europe seeing the highest fill rates whilst Latvia and Denmark have been the region’s laggards.

The Oceana UK environmental group is challenging the United Kingdom government in court for issuing 31 exploration licences in May as part of its latest offshore licensing round, saying authorities failed to assess the projects’ environmental impact on marine life.

Mexico’s soon-to-be president Claudia Sheinbaum ruled out a reversal of oil policy to the Nieto-era associations between private producers and state oil firm Pemex, despite a dramatic 12% decline in oil production in AMLO’s six-year tenure to a low of 1.48 million b/d.

Egypt’s government has promised to return oil and gas production in the country to normal levels from 2025 onwards after a spectacular plunge in gas output from the offshore Zohr field that prompted the North African country to import LNG and fuel oil to meet power needs.