By Barani Krishnan
Investing.com - Let’s hear it for the Fed. And possible easing, of course.
Federal Reserve Chairman Jerome Powell’s assurance that the central bank will do what it takes to keep the near-record expansion of the U.S. economy going provided the lift that oil prices and Wall Street needed on Tuesday from the bearish mood that's pervaded financial markets.
U.S. West Texas Intermediate crude settled up 23 cents, or 0.4%, at $53.48 per barrel. On Monday, WTI settled at weakest level since Feb. 12 at $53.25.
U.K. Brent crude rose 67 cents, or 1.1%, to $61.95 by 2:52 PM ET (18:52 GMT). It settled at a four-month low of $61.28 in the previous occasion.
Traders also attributed the rebound to expectations of a better weekly dataset on oil supply-demand from the U.S. Energy Information Administration on Wednesday.
Crude oil inventories decreased by just 0.28 million barrels in the week to May 24, the EIA reported last week, compared to a forecast draw of 0.86 million barrels. It rose by an average of 5 million barrels in two previous weeks due to weak refinery runs.
The American Petroleum Institute will issue a snapshot at 4:30PM ET (20:30 GMT) on what the EIA’s numbers for the week ending March 31 are likely to be. The market for now is anticipating a drawdown of around 850,000 barrels.
Powell was the second senior Fed official in as many days to suggest the central bank might be open to dropping interest rates to help the U.S. economy maintain its near decade-long expansion. He cited “recent developments involving trade negotiations and other matters,” an oblique reference to the U.S. trade wars against China and Mexico that saw the S&P 500 fall 6.6% in May and WTI a 16.3% loss. The slump spawned fears of a worldwide recession.
“We do not know how or when these issues will be resolved,” Powell said in prepared remarks at a speech in Chicago. “We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective.”
St. Louis Fed President James Bullard was more direct in suggesting on Monday that the central bank might need to cut rates due to low inflation and threat to economic growth from President Trump’s tariffs battles with some of the most important trading partners of the United States.
Trade disputes aside, Bullard said the case for a rate cut was also strengthened by persistently low inflation below the Fed’s 2% target. He contended that a recent inversion in the Treasury yield curve suggests the current level of interest rates is “inappropriately high.”
Crude futures hit 2019 highs in April, with WTI reaching $66.60 and Brent $75.60, from the combination of OPEC production cuts and U.S. sanctions on Iranian and Venezuelan crude exports. Since then, the escalating U.S.-China trade row has had a greater impact on the oil market's narrative, with the clash between the two economic titans sparking global recession worries.
Even a media interview with Saudi Arabia's Energy Minister Khalid al-Falih on Monday that said OPEC was committed in "balancing" oil prices with deeper production cuts provided only temporary relief from the selling.
Both WTI and Brent remained near bear-market territory on Tuesday, with losses of nearly 20% from 2019 highs hit in April.
While the remarks of the Fed officials lifted oil and other risk assets on Tuesday, President Trump, speaking from London where he was on a state visit, said he was going ahead to put the first 5% tariff on Mexican imports on Monday even as a delegation from that country was in Washington holding talks with U.S. officials. Trump is accusing Mexico of deliberate inaction in stopping the flow of undocumented migrants from its side of the border into the U.S. He has warned that he will increase tariffs on his North American by 5% until they reach 25%, unless it does enough on the immigration issue.
The tariff threat against Mexico has so alarmed GOP lawmakers on Capitol Hill that they have begun discussing voting on a second disapproval resolution to overturn Trump’s declaration of an emergency at the border. That could result in an explosive confrontation between Trump and members of his own party, who strongly oppose tariffs as taxes on U.S. consumers.
“It’s more likely the tariffs go on and we’ll probably be talking during the time the tariffs are on,” Trump said, warning that Republican lawmakers would be “foolish” to try to stop him.