Ahead of the US Personal Consumption Expenditures (PCE) data, the US dollar experiences notable weakness as traders embrace the prospect of Federal Reserve rate cuts. Market sentiment suggests growing speculation that major central banks, especially the Fed, may adopt early and aggressive rate cuts in the upcoming year, influencing the dollar’s trajectory. The prevailing dynamics indicate conditions are not ripe for a significant yen sell-off, aligning with the perspective that the path of least resistance for USDJPY appears lower.
Oil Market: Geopolitical Factors Support Prices Amid Inventory Challenges
While geopolitical risks continue to lend support to oil prices in the lead-up to an extended holiday week, upward movements face obstacles due to a bearish Energy Information Administration (EIA) inventory report. The report reveals a substantial increase of 9.5 million barrels in total US oil and petroleum product stocks, coinciding with domestic oil production hitting a new record of 13.3 million barrels per day (bpd).
During the week ending December 15, domestic oil stockpiles (excluding the Strategic Petroleum Reserve) unexpectedly increased by 2.9 million barrels, deviating from the projected 2.5 million barrel decrease. This rise has pushed inventories approximately 1% higher than the five-year average. The surge is attributed to a record-high US oil production of 13.3 million bpd, representing a 200,000 bpd increase from the previous week.
The latest Drilling Productivity Report from the EIA anticipates a new record high oil production of 5.986 million bpd in the Permian Basin at the beginning of 2024, marking a 38% increase from January 2022. Additionally, Bakken oil production in North Dakota is projected to reach a new record of 1.308 million bpd in January, reflecting a 19.6% year-on-year increase of 214,500 bpd.
Note: The geopolitical risk premium supports oil prices, while inventory challenges and record-high production pose hurdles for further upward movement.
