Oil prices extended their gains in American trade on Thursday away from one-week lows, resuming strong gains after a two-day hiatus.

The gains come amid hopes the pressures facing world economies are subsiding as global central banks pause their aggressive policy tightening measures.

Prices are also boosted by the steep drop in US crude stocks last week in a positive sign for demand. 

Global Oil Prices

US crude rose 1.9% to $90.94 a barrel, with a one-week trough at $88.42, while Brent climbed 1.6% to $94.56 a barrel, with a one-week trough at $92.24.

On Wednesday, US crude lost 1.6%, while Brent slipped 1.3%, the second loss in a row on profit-taking off ten-month highs.

Global Economy 

Global central banks including in Switzerland, Britain, the US, have all decided to pause interest rate hikes to gauge economic response. 

Such a step will likely be followed by steps to support the economy early in 2024, which could include interest rate hikes.

A rebound in global economic conditions will obviously boost fuel demand. 

US Stocks 

The Energy Information Administration reported a drop of 2.1 million barrels in US crude stocks last week, while analysts expected a drop of 1.3 million barrels.

Gasoline stocks fell 800 thousand barrels to 219.5 million barrels, as distillate stocks fell 2.9 million barrels to 119.7 million barrels.

US Production

The EIA also reported no change in US production at 12.9 million barrels, the highest since March 2020.

Sterling fell on Thursday after Bank of England announced a surprise pause in the cycle of rate hikes, sending the pound to six-month lows amid concerns about the interest rate gap between the US and UK.

Such a pause by the BOE was certainly possible after inflation fell to 1/15 year lows while both the Federal Reserve and Swiss National Bank paused interest rate hikes. 

The main surprise was Governor Andrew Bailey's less than bullish press conference, which hurt chances of another UK interest rate hike this year. 

GBP/USD

GBP/USD fell 0.9% to 1.2234, the lowest since March, with a session-high at 1.2347, after losing 0.4% yesterday, becoming the worst performing major currency after UK inflation tumbled. 

BOE

Bank of England voted to hold interest rates unchanged at 5.25%, the highest since March 2008, confounding expectations of a 0.25% hike to 5.5%.

Such a pause is the first for Bank of England since it launched the current cycle of interestt rate hikes in Decemebr 2021, in turn hurting the pound's tanding.

The BOE stated it'll continue to monitor inflation indices and economic data, adding that the policies have become tight enough to bring inflation to the 2% target. 

The BOE's press release pointed to the slowing down consumer prices and labor conditions, and weaker business sentiment as basis for the decision.

Bailey

BOE Governor Andrew Bailey asserted the bank will continue to monitor data to judge the need for another interest rate hike.

However he noted how inflation tapered off in recent months, which is a trend expected to carry on.

UK Rates

After the meeting, chances of a 0.25% interest rate by Bank of England in November tumbled to 64% from 81%.

Chances of an interest  rate cut in September, 2024 rose from 27% to 55%.

US Dollar rose in European trade on Thursday against a basket of major rivals for the third straight session, scaling a six-month high as US treasury yields spike to multi-year highs following Fed's meeting.

The Federal Reserve paused interest rates but hinted strongly at another 0.25% rate hike before the year end, while cutting down prospects of a rate cut in 2024. 

The Index

The dollar index rose 0.25% to 105.70, the highest since March, with a session-low at 105.42, after closing up 0.2% yesterday following Fed's meeting.

US Yields 

US 10-year treasury yields spiked over 1.3% today on track for the third meeting in a row, hitting 16-year highs at 4.472% and bolstering investments in dollar. 

The Fed

As expected the Federal Reserve maintained interest rates unchanged at below 5.5%, already the highest since 2001.

It's a signal for the approaching end of the current policy tightening cycle. 

The Fed stated the pause intends to give a longer chance for recent policy decisions to manifest their impact on US data, even as inflation remains stubbornly away from 2%. 

The Fed said it'll continue to monitor data closely, especially labor and consumer prices data and global financial developments to determine the best path ahead for policies. 

Economic Outlook

The Federal Reserve's economic outlook report released yesterday included important modifications: 

Growth is now revised to 2.1% this year from 1.0% in June forecasts, while 2024 growth forecasts are revised to 1.5%, and 2025 forecasts are revised to 1.8%. 

Total inflation forecasts are revised to 3.3% this year, and 2.5% next year, and 2.2% in 2025. 

Core inflation forecasts are revise to 3.7% this year, and 2.6% next year, and 2.3% in 2025. 

The Fed maintained forecasts for target interest rates at  5.75%, hinting strongly at another interest  rate hike this year. 

Powell

Fed Chair Jerome Powell said Wednesday the process of controlling inflation is a long-term one, and interest rates are likely to remain high for an extended duration to bring inflation down. 

He added that another interest  rate hike won't impact the economy much but will help bring inflation towards the 2% medium target.

Jerome Powell expects inflation to reach the 2% target by the end of 2025, while remaining above 3% this year , adding the Fed is focused mainly on core inflation more than main inflation, which is influenced by volatile energy prices.

Bank of England voted to hold interest rates unchanged at 5.25%, the highest since March 2008, confounding expectations of a 0.25% hike to 5.5%.

Such a pause is the first for Bank of England since it launched the current cycle of interestt rate hikes in Decemebr 2021, in turn hurting the pound's tanding.