Oil Prices Drop Ahead of Fed Announcement; US Inventories Expected to Decrease
Investing.com– Oil prices saw a decline on Wednesday as investors awaited the Federal Reserve’s latest policy decision. Markets were cautious amidst uncertainties surrounding the announcement.
Caution Ahead of the Federal Reserve Decision
The US crude futures dropped by 1.6% to $81.39 a barrel, while the contract witnessed a 1.4% decrease, settling at $86.16 a barrel by 08:55 ET (12.55 GMT).
Market participants are cautious as a result of a stronger dollar, anticipating the Federal Reserve’s interest rate policy announcement later in the day. The Fed is widely expected to maintain its current interest rates; however, recent hotter-than-expected US inflation data has prompted concerns that the central officials might adopt a more stringent stance on future rate cuts.
This surge in the US dollar, trading near two-week highs on Wednesday, has led to an increase in the cost of crude for buyers using other currencies.
Tight Global Supplies
Despite the dip, both contracts remain close to their peak levels since November due to indicators of tighter global supplies. Strikes by Ukraine on crucial Russian fuel refineries have disrupted production capacity. Moreover, some members of the Organization of the Petroleum Exporting Countries (OPEC) have hinted at reducing production in forthcoming months, with the cartel planning to maintain the current rate of supply cuts until June.
According to analysts at ING, the supply risks associated with Russian refined products are providing a foundation for the market to tighten, especially after the voluntary cuts from OPEC+ extending into the second quarter of 2024.
Unexpected Drop in US Inventories – API
Recent data released by the American Petroleum Institute (API) revealed a surprising 1.5 million barrel reduction in US crude inventories in the week ending March 22, contrasting expectations for a minor build-up. This potential consecutive drop in inventories might signify improving fuel demand post a winter slowdown.
API’s data typically foreshadows similar readings from the U.S. Energy Information Administration (EIA) expected later on Wednesday. The continuous decline in US inventories contributes to speculations of tighter global supplies amid escalating gas prices in the leading fuel-consuming nation.
(Ambar Warrick contributed to this article.)
