Today, the Federal Reserve announced a 25bp rate cut as expected, but also adjusted its rate cut expectations for 2025, leading to a surge in the dollar and impacting various markets. The commodities complex experienced downward pressure, especially in the energy sector, following the news. Additionally, a softer than expected weekly oil inventory report from the EIA added to the downward pressure on the oil market.
Energy Market Update
Oil prices declined this morning as the dollar strengthened to its highest level in over two years due to expectations of fewer interest rate cuts from the Federal Reserve next year. The Energy Information Administration (EIA) reported a lower-than-expected oil inventory withdrawal, further weighing on prices.
The EIA’s report showed a decrease of 0.9m barrels in commercial crude oil inventories for the week ending on 13 December 2024, below market expectations. Total US crude oil inventories fell by just 0.4m barrels when factoring in the SPR, standing at 421m barrels, 6% below the five-year average.
Other key highlights include a rise in Cushing, Oklahoma oil inventories, increased crude oil imports and exports, and fluctuations in gasoline and distillate fuel oil stockpiles.
Metals Market Update
Gold prices dropped over 2% to a one-month low after the Fed’s announcement of slower monetary easing in 2025. The dollar strengthened, and treasury yields rose in response to the Fed’s revised rate cut expectations.
Industrial metals, including LME copper, also traded lower this morning amidst broader market weakness. The latest data from the International Lead and Zinc Study Group revealed insights into the global zinc and lead markets.
Agriculture Market Update
Cocoa prices soared above US$12,000/t for the first time, driven by concerns of lower output in the Ivory Coast due to unfavorable weather conditions. Dry weather in West Africa is expected to impact cocoa production in the coming months.
France’s Agriculture Ministry provided updated estimates for French soft wheat and barley inventories for the 2024/25 season, highlighting changes in stockpile levels and export expectations.
Analysis:
The Federal Reserve’s decision to cut rates by 25bp and revise its rate cut forecasts for 2025 has had a significant impact on energy, metals, and agriculture markets. The dollar’s strength following the announcement has influenced commodity prices, with oil and gold experiencing notable movements. Investors and traders should closely monitor market reactions to the Fed’s decision and adjust their strategies accordingly to navigate the evolving landscape.