Oil Prices Rise on Yellen’s Dovish Policies
Markets around the world took notice when Janet Yellen used a dovish tone this week while discussing policy changes that included increasing interest rates. She said, “Given the risks to the outlook, I consider it appropriate for the committee to proceed cautiously in adjusting policy.” Ms. Yellen did not provide details about when she expects the next rate increase to occur, but the Federal Reserve’s policymakers have their next meeting scheduled for April 26 and April 27.
Oil Prices Rise
This week saw oil futures sliding up to almost $40 a barrel based on a weakened U.S. dollar and Ms. Yellen’s cautious remarks. As reports of the diminished dollar hit the news cycle, investors gained a sudden interest in riskier assets. Pushing investors further was the story released by the International Energy Agency confirming that rumors regarding an immense oil distribution from Iran were false. Brent futures saw an increase of 46 cents to $39.60 a barrel while U.S. crude climbed by 61 cents to $38.89 a barrel.
During the March meeting, federal officials made a few minor modifications to their earlier positive predictions for the nation’s economy. They also decreased their expectations for the year’s rising interest rates. Instead of the full percentage point increase that many in the group claimed would be on the way last December, they are now forecasting an increase of just half a percentage point. Investors are beginning to doubt that the Fed will act on interest rates at all. In fact, a few confirmed their belief that if they rise, it will be by just a quarter-percentage point toward the end of the year.
Ms. Yellen explained the prediction change by pointing out that global growth is occurring at a somewhat weaker pace than economists had been expecting. The proof of this is last summer’s market turbulence as well as this year’s shifts. Ms. Yellen also mentioned that the Federal Reserve was concerned about China’s economic slowdown and the overall drop in the cost of oil.
A Year of Falling Oil Prices
Olivier Jakob, an oil trading industry expert, commented on Ms. Yellen’s remarks. He said, “One of the main reasons for Yellen’s dovish stance is the low oil prices, and she made a direct reference to it.” Jakob went on to say, “For Yellen, low oil prices are not only contributing to low inflation expectations, but they are also a threat to global economic growth due to the financial stress they are imposing on oil-producing economies.”
After Saudi Arabia and Kuwait confirmed that they would restart oil production at a rate of 300,000 barrels a day at the Khafji field, which the two countries operate jointly, oil prices dropped by approximately 3 percent during the prior session. This drop occurred even after major oil developers verified that they are considering a freeze on their output.
The plan to halt production came about in January when oil prices plummeted to a cost that was lower than $30 a barrel from a high that reached $115 a barrel in June of 2014. Global oversupply put in effect by the United States combined with more output from OPEC caused prices to fall.
Industry watchdogs report that even Iran, an OPEC member, may be present at a meeting planned by oil producers in April. According to reports, oil company execs intend to discuss the production freeze.
Getting Ahead of Economic Weaknesses
Since economic weakness could hurt the nation, the Federal Reserve is trying to stay ahead of it by modifying the country’s policies and taking steps to counteract global economic instability. So far, the United States economy has been extremely resilient. The markets have operated like a stabilizer by accurately forecasting the global economic slowdown as well as the Federal Reserve’s reaction to it.
Investors responded to the world’s economic fluctuations by marking down their predictions for the federal rate’s future path. This action increased the downward pressure on interest rates with lengthier terms muffling the negative effects on the country’s economic activity. When investors heard the remarks made by Ms. Yellen this week, they cheered and sent stocks higher. Gold also climbed while Treasury yields fell.
Tied to the U.S. Dollar
Recently, oil has been shifting with the U.S. dollar. After Ms. Yellen made her announcement regarding the Federal Reserve’s plan to increase rates more slowly, the dollar took a dip, which sent oil prices higher. Since crude is priced in U.S currency, investors of other currencies become more interested in it when the U.S. dollar drops. For additional information regarding oil prices and the Federal Reserve’s policies, visit the Personal Money Store website.