Plus500 does not provide CFD services to residents of the United States. Visit our U.S. website at

What Is Driving Oil Prices Higher?

Plus500 | Wednesday 08 February 2023

West Texas Intermediate oil futures continued to advance on Wednesday, February 08, though at a much more modest pace. WTI (CL) rose only by 0.2% to $77.27/bbl, compared to the 4.1% rise on Tuesday, February 07. The move came along with a weakening dollar, which also extended losses seen on Tuesday. The catalyst for both moves were the most recent comments by Fed Chairman Jerome Powell, who made a speech at the Economic Club in Washington on Tuesday and answered questions holding a less hawkish stance than expected.


Powell Reiterates, Comments Seen Dovish

Jerome Powell's comments might’ve eased some market concerns over the possibility of more hawkish interest rates hikes. In particular, it was his reiteration that the process of bringing inflation down would take a considerable time, which was given in the context of being asked about the unexpectedly strong jobs numbers reported on Friday, February 3rd. Jerome Powell didn't say whether the data would have changed the outcome of the last FOMC meeting, but rather that it simply affirmed that the Fed has some ways to raise rates.

The comments were followed by a weaker US dollar, making buying oil cheaper for investors than other currencies. The expectation of less aggressive hikes in the US contributed to hopes in the market that the world's largest economy would avoid a sharper downturn at some point in the near term. Avoiding a recession in the world's largest oil consumer could prevent a drop in oil demand. (Source:Reuters)

Keeping Up with the Surge of Demand

The International Energy Agency (IEA) issued its latest report suggesting that demand for crude would rise in the first half of the month on improved demand driven by China. In particular, the agency's head pointed out that jet fuel demand was surging. That came in the context of Saudi Arabia raising prices for oil exports to Asia for the first time in six months, also based on an expected increase in demand from China.

Over the last several months, the higher crude prices may have led to more profits from major oil producers. Following ExxonMobil (XOM) and Chevron (CVX)’s exceptional earnings, BP (BP-L) was the latest company to report on Tuesday, February 7th, with more than double its 2021 net profits and an increased dividend by 10%.

The market is still assessing the impact on crude supplies following the devastating earthquake in Turkey, where a three-month state of emergency has been declared. One of the key ports for exporting oil from Iraq and Azerbaijan through Turkey, Ceyhan, which has a capacity of around 1 million bpd, was also closed from a combination of the impact of the earthquake and bad weather, as authorities assess the destruction. Initial reports say that both pipelines have not been damaged but remain closed following the earthquake, and no information has been given on when exports could resume. 

Falling Inventories and 'Tighter' Forecasts

The American Petroleum Institute (API) issued its latest weekly inventory report, showing an unexpected drawdown of 2.2M bbl of oil. This was in contrast to analyst forecasts that had expected another 2.5M build. But distillates inventories grew, including diesel and heating oil.

The drop in inventories was reported on the same day the EIA issued its Short Term Energy Outlook, expecting US crude production to rise but demand to remain flat. Production is expected to rise by about 590K bpd over the course of the current year. By comparison, Chinese demand is expected to increase by 700K bpd. The EIA forecasts the supply and demand situation to be even tighter next year, with production expected to increase just 160K boepd, while China alone will increase demand by 400K bpd. Meanwhile, US demand is expected to remain at about 20.3M bbl/day due to the economy entering a slight contraction in the first half of the year.


Oil prices shot up in the wake of Fed Chair Powell's comments, as the market expected less tightening that would decrease economic activity and demand for oil. However, China continues to be seen as the main demand driver for this year, as the world's largest manufacturing centre reopens following covid lockdowns.

This information is written by Plus500 Ltd. The information is provided for general purposes only, and does not take into account any personal circumstances or objectives. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. No representation or warranty is given as to the accuracy or completeness of this information. It does not constitute financial, investment or other advice on which you can rely. Any references to past performance, historical returns, future projections, and statistical forecasts are no guarantee of future returns or future performance. Plus500 will not be held responsible for any use that may be made of this information and for any consequences that may result from such use. Hence, any person acting based on this information does so at their own discretion. The information has not been prepared in accordance with legal requirements designed to promote the independence of investment research.

Need Help?
24/7 Support