Oil volatile after inventory report

The price of oil spiked after the Energy Information Administration’s US inventories report came in much lower than expected.

Economists were expecting stockpiles to decline by 1.4 million barrels, but in fact the drop was 2.8 million barrels. The report indicates that oil is in greater demand than originally thought; consequently traders bought oil after the figures were released.

So far, the political unrest in Egypt hasn’t really had an impact on the price of oil, although the Middle East is a large oil-producing region, and any unrest there can spark a sharp rise in the price. Egypt is also crucial from a logistical point of view, as the Suez Canal is the gateway to the Gulf. So if violent clashes continue in Cairo, we could see oil trade higher.

Oil, like other commodities, is traded in US dollars, so when the dollar is weak it makes oil relatively cheaper to buy. Yesterday, Dennis Lockhart of the Federal Reserve stated that its stimulus package will not be trimmed until the US economy is strong enough. However, the Fed’s James Bullard is due to speak at 6.20pm today, and if he contradicts his colleague and states tapering could begin next month, we could see the US dollar rally and oil fall.

Daily Brent Crude chart

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