Oil prices experienced a drop of nearly $1 on Wednesday, with investors awaiting the U.S. Federal Reserve’s interest rate decision and uncertain about the impact it might have on energy demand and when peak rates will be reached.
This drop in prices occurred despite larger-than-expected declines in U.S. oil stockpiles and weak U.S. shale output, indicating tight crude supply for the remainder of 2023.
Global benchmark Brent crude futures declined by 88 cents, or 0.9%, reaching $93.46 a barrel by 0650 GMT, following Tuesday’s peak of $95.96, the highest since November.
U.S. West Texas Intermediate crude futures fell by 1%, or 97 cents, to $90.23 a barrel, after reaching a 10-month high of $93.74 a barrel the previous day. The October WTI contract expired on Wednesday, and the more active November contract declined by 82 cents, or 0.9%, to $89.66 a barrel.
Edward Moya, senior market analyst at data and analytics firm OANDA, noted, “The oil rally is taking a little break as every trader awaits a pivotal Fed decision that might tilt the scales of whether the U.S. economy has a soft or hard landing.” He added that the oil market remains “very tight” and will continue to be so in the short term.
U.S. crude oil stockpiles decreased by approximately 5.25 million barrels last week, according to market sources citing American Petroleum Institute figures on Tuesday, exceeding analysts’ expectations of a 2.2 million-barrel decline.
Goldman Sachs analysts adjusted their 12-month ahead Brent forecast from $93 a barrel to $100 a barrel due to expectations of sharper inventory draws. They believe that OPEC will be able to maintain Brent in an $80-$105 range in 2024 due to robust global demand growth and assertive pricing power.
Meanwhile, Russia’s government is contemplating imposing higher export duties on all types of oil products, potentially contributing to global supply concerns. U.S. oil output from major shale-producing regions is also on track to fall to its lowest level since May 2023.
On the demand side, India’s crude oil imports have fallen for three consecutive months, partly due to maintenance and reduced shipments from Russia.
Exxon Mobil Corp has announced plans to increase oil production in Nigeria, further impacting the global oil market.
Investors are closely monitoring central bank interest rate decisions, including the Fed’s, to gauge economic growth and fuel demand outlooks. While the Fed is expected to keep interest rates steady, the focus is on its projected policy path, which remains uncertain.
