The Feds yesterday decided on a rate cut of three-quarters of a percentage point taking rates down to 2.25% while many investors expected a 100 basis point cut. The interest rate cut was voted 8 to 2; this finally raised people's confidence in the economy since the Feds were not very aggressive with their cut. The Feds said that there is still downside risks to growth and may hold an emergency cut again if needed.
In addition to the rate cut, the Feds also lowered the discount rate to 2.5%, as they try to provide liquidity in the US economy. As traders saw attempts to save the economy from the current crisis, their market spirit rose once again and started trading in the crude market causing a rebound in the prices of crude towards the upside reaching previous levels. The contract gained $3.74 closing at $109.42 per barrel reaching a low of $105.68 per barrel and a high of $109.80 per barrel.
Today, crude prices are still surging as it gets its support from the rallying of stock markets after they recorded gains once the rate cut was announced by the Feds. During the FOMC meeting, we saw the greenback gaining its strength against majors, but today again we see the weakening of the dollar. Oil is considered a hedge against inflation and the falling dollar, and is also cheaper for foreign investors with stronger currencies since it is both bought and sold in dollars. Witnessed today we see a slight decline in prices from the beginning of the session as the economy expects the EIA report coming out showing an increase in crude supply. The markets opened today at $108.80 per barrel reaching a low $108.12 per barrel and a high of 108.98 per barrel.
The EIA report is coming out today and is expected to show an increase in crude stockpiles of 2.3 million barrels with a 1.5 million barrels decline of distillates. Gasoline inventories are also expected to show a rise of 400,000 barrels. In my opinion I think crude prices will decline on the short term due to the dampened demand by the world's biggest crude consumer the US. On the medium term, prices will rise again as a result of the weakened dollar since crude is a safe investment during times of global instability.