Oil prices fell from a 10-month high on Wednesday ahead of the US Federal Reserve’s interest rate decision; There is uncertainty about when peak interest rates will be reached and how much impact this will have on energy demand.
Prices fell despite a larger-than-expected decline in U.S. oil inventories and lower U.S. shale oil production, indicating tight crude supplies through the remainder of 2023.
Brent crude futures fell just over $1 to $93.33 a barrel and were last down 80 cents, or 0.8%, to $93.54 a barrel as of 03:10 GMT. Brent hit $95.96 on Tuesday, its highest level since November.
West Texas Intermediate (WTI) crude oil futures fell 0.8%, or 75 cents, to $90.45 a barrel after climbing to a 10-month high of $93.74 a barrel the previous day. The October WTI contract expires Wednesday, and the more active November contract fell 70 cents, or 0.8%, to $89.78 a barrel.
While traders await the Fed’s decision, which could change the balance of whether the US economy is in a soft or hard landing, the rally in oil took a bit of a break. The oil market is still tight and looks set to stay that way in the short term.
The Fed is looking to get Wall Street on edge to stimulate the economy. The crude demand outlook may gradually soften, but the oil market is very likely to be in short supply throughout the winter.
Investors are awaiting a series of central bank interest rate decisions this week, including the U.S. Federal Reserve’s decision on Wednesday, to assess the outlook for economic growth and fuel demand. The Fed is expected to keep interest rates steady, but investors’ attention will be on the uncertain policy.
US crude oil inventories fell by about 5.25 million barrels last week, according to figures from the American Petroleum Institute (API) on Tuesday. However, analysts were expecting a decline of 2.2 million barrels.
A major decline in US oil inventories and a slowdown in US shale oil production are raising supply concerns stemming from extended production curbs by Saudi Arabia and Russia.
There will be some short-term easing in oil prices due to the recent rally, but expectations remain for both Brent and WTI to reach $100 per barrel by the end of this year.
The Russian government made a smart move in the market where fuel shortage will prevail. Russia is considering imposing export duties of $250 per metric ton on all types of petroleum products from October 1 through June 2024.
That move comes as U.S. oil output from top shale-producing regions is on track to fall to 9.393 million bpd in October, the lowest since May 2023, and after Saudi Arabia and Russia extended combined supply cuts of 1.3 million bpd to the end of the year.
On the demand side, India’s crude oil imports fell for a third consecutive month in August as refineries in the world’s third-largest importer carried out maintenance and reduced shipments from Russia, government data showed on Tuesday.
On supply, Exxon Mobil Corp is promising to produce approximately 40,000 barrels of additional oil per day as part of a new investment drive in Nigeria.
