Oil prices retreated in Asian trading on Wednesday as traders engaged in profit-taking ahead of a highly anticipated Federal Reserve interest rate decision. However, indications of another draw in U.S. inventories continued to suggest tight markets.
Oil prices had briefly surged to their highest levels in 10 months recently due to deeper-than-expected supply cuts by Saudi Arabia and Russia, which indicated significantly tighter oil markets for the rest of the year.
While signs of a larger-than-expected weekly draw in U.S. inventories supported expectations of tighter markets, rising gasoline inventories signaled potential cooling in fuel demand in the world’s largest oil consumer, the United States.
Brent oil futures dropped 0.9% to $93.50 a barrel, while West Texas Intermediate (WTI) crude futures fell 0.8% to $89.75 a barrel.
Analysts anticipate oil prices to trade in a range of $90 to $100 a barrel for the remainder of the year.
Data from the American Petroleum Institute (API) showed that U.S. crude inventories likely decreased by over 5 million barrels in the week ending September 15. This data usually aligns with government inventory data, which was expected to show a draw of 2.7 million barrels when released later on Wednesday.
Although U.S. crude inventories increased by nearly 4 million barrels in the week ending September 8, they have declined more than expected for four of the past five weeks, indicating that U.S. crude markets remain tight. However, the API also reported a weekly increase in gasoline inventories, suggesting a cooling in U.S. fuel demand following the end of the summer season.
Despite this, crude prices have risen by nearly 15% over the past three weeks due to the prospect of tighter markets.
Investors are closely watching the Federal Reserve’s interest rate decision, with expectations that the central bank will keep rates on hold. However, any potentially hawkish signals from the Fed could impact oil prices, especially given concerns about U.S. inflation and interest rates already being at over 20-year highs, which could potentially dampen economic growth and oil demand.
Additionally, any hawkish signals from the Fed could boost the U.S. dollar, adding further pressure on oil prices. Central banks in China, England, and Japan are also set to decide on interest rates this week.
