By Barani Krishnan
Investing.com - Fed Chief Jay Powell hasn’t spoken yet, but oil prices still fell on Thursday on the assumption that he wouldn’t support more rate cuts when he addresses the annual Jackson Hole Economic Policy Symposium.
New York-traded West Texas Intermediate crude settled down 33 cents, or 0.6%, at $55.35 per barrel, extending its Wednesday’s slide of 0.8%.
London-traded Brent crude, the benchmark for oil outside of the U.S., fell 39 cents, or 0.6%, to $59.91, returning below the key $60 per barrel support.
Expectations have been heavy since the start of the week that Powell’s speech at Jackson Hole, Wyo. on Friday would provide clues on when the central bank would cut rates again after its 25-basis-point reduction in July. Powell is under immense pressure from President Donald Trump to announce a full percentage point cut in rates, or something as substantial, to deliver a major boost to Wall Street and other markets. But most economists also expect Powell to uphold his independence and ignore the president.
Rate cuts weaken the U.S. dollar, making commodities priced in the greenback cheaper for the rest of the world. Dollar-denominated prices of raw materials such as oil or gold often automatically rise after a rate cut, adjusting to the phenomenon.
Hopes that the Fed would go down the path of monetary easing again were partially dashed on Wednesday after the central bank’s minutes at its July meeting, where it cut rates for the first time in a decade, suggested the action was a one-off move.
“The Fed minutes show the Fed is all mixed up,” said Phil Flynn, senior market analyst for energy at The Price Futures Group brokerage in Chicago.
“Some Fed members wanted a 50-basis point rate cut. Other Fed members wanted no cut at all, and still other Fed members were in the middle. That lack of clear conviction is one reason oil can’t find a real direction.”
Philadelphia Federal Reserve President Patrick Harker, a non-voting member of the Fed, told CNBC on Thursday that he’s “on hold” right now for monetary easing, adding to doubts that policymakers at the central bank were united in seeking further rate cuts. Esther George, Harker’s Kansas City counterpart, also said that the United States didn't need lower rates right away.
The net result from Powell’s speech on Friday likely to be disappointment for oil bulls, analysts said.
“With positioning in equities, bonds and energy all heavily weighted to this outcome, the resulting correction from a lack of Powell love could be both ugly and emotional,” said Jeffrey Halley, analyst at Oanda.
Oil's downside was limited on Thursday by data showing that business activity in the eurozone unexpectedly picked up in August, giving crude traders some respite from economic worries that had pressured prices.
Also supporting the market was the expectation that OPEC will squeeze crude supply further to boost prices. Reuters reported that OPEC’s share of global oil supply had fallen to 30%, its lowest in a decade, but concluded the cartel won't be stampeded into changing output policy as a result.