Oil prices saw a modest decline on Wednesday as investors adopted a cautious approach ahead of the widely-expected Federal Reserve rate hike. Additionally, concerns arose over signs indicating a potential increase in U.S. inventories.
Despite the pullback, crude prices remained in close proximity to the three-month highs reached earlier this week. West Texas Intermediate (WTI) crude futures inched closer to the significant milestone of $80 per barrel, largely driven by tightening supply conditions and promises of further stimulus measures in China, a major importer of oil.
However, the oil market’s bullish run somewhat cooled down on Wednesday, with traders adopting a wait-and-see approach until the conclusion of the Federal Reserve meeting later in the day. Furthermore, industry data revealed an unexpected growth in U.S. crude inventories during the week ending July 21.
By 22:44 ET (02:44 GMT), Brent oil futures declined 0.4% to $82.88 per barrel, while WTI futures experienced a similar 0.4% drop, reaching $79.30 per barrel. This came after significant gains of 4% to 6% witnessed in both major oil contracts over the past four sessions, leading to some profit taking.
The American Petroleum Institute reported on Tuesday that U.S. crude inventories likely rose by 1.3 million barrels, contrary to expectations of a 1.9 million-barrel drawdown. This suggested that U.S. supplies may not be as tight as previously believed.
However, the positive aspect of the data was the draw in gasoline inventories, indicating that fuel demand remained steady, primarily due to the travel-intensive summer season.
As for global oil supplies, they are expected to tighten further with the impact of production cuts implemented by major oil-producing nations like Saudi Arabia and Russia gradually taking effect.
Attention was also on the Federal Reserve’s impending rate hike, which is anticipated to be a 25 basis points increase. While the market has largely priced in the hike, uncertainty surrounding the Fed’s future outlook tempered sentiment on Wednesday.
Market data suggested that Wednesday’s hike might be the last for the year according to Fed Fund future prices. However, the Federal Reserve itself has not provided any indication of this, and they have forecasted at least one more hike after today, citing inflation continuing to trend above the central bank’s annual target.
The prospect of rising interest rates contributed to fears of economic growth slowing down, potentially impacting oil demand throughout the year. This concern has weighed heavily on crude oil markets, with prices only recently beginning to show positive trends for the year 2023.
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