Oil prices dropped by nearly $1 on Wednesday ahead of the U.S. Federal Reserve’s interest rate decision. Investors remained uncertain about when peak rates would be reached and how much of an impact it would have on energy demand, News About Nigeria reports.
Despite a larger-than-expected draw in U.S. oil stockpiles and weak U.S. shale output signaling tight crude supply for the remainder of 2023, prices declined.
The global benchmark, Brent crude futures, saw a decrease of 88 cents, or 0.9%, landing at $93.46 a barrel as of 0650 GMT. This followed Brent reaching $95.96 on Tuesday, its highest point since November.
U.S. West Texas Intermediate crude futures experienced a 1% drop, or 97 cents, down to $90.23 a barrel, after reaching a 10-month high of $93.74 a barrel the previous day. The October WTI contract was set to expire on Wednesday, with the more active November contract down 82 cents, or 0.9%, at $89.66 a barrel Reuters revealed.
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 remained “very tight” and was likely to stay that way in the short term.
Moya also stated, “Unless Wall Street grows nervous that the Fed will kill the economy, the crude demand outlook should (only) gradually soften, but the oil market will easily have a supply deficit throughout winter.”
Investors were eagerly anticipating central bank interest rate decisions this week, including the Fed’s announcement at 1800 GMT on Tuesday. Their focus was on the projected policy path, which remained uncertain despite expectations that the Fed would keep interest rates unchanged.
According to market sources citing American Petroleum Institute figures from Tuesday, U.S. crude oil stockpiles decreased by approximately 5.25 million barrels last week, surpassing the 2.2 million-barrel decline expected by analysts in a Reuters poll.
Goldman Sachs analysts adjusted their 12-month ahead Brent forecast from $93 a barrel to $100 a barrel, citing expectations of more substantial inventory reductions. They attributed this change to lower OPEC supply and higher demand outweighing increased U.S. supply. The analysts believed that OPEC could maintain Brent in an $80-$105 range in 2024, leveraging robust Asia-centric global demand growth and exercising pricing power assertively.
Furthermore, Russia’s government was contemplating imposing export duties of $250 per metric ton on all types of oil products from October 1 until June 2024, a significant increase from the current fees, to address fuel shortages, according to Reuters sources.
This decision coincided with the expected decline in U.S. oil output from its major shale-producing regions to 9.393 million bpd in October, the lowest since May 2023. Additionally, Saudi Arabia and Russia extended combined supply cuts of 1.3 million bpd through the end of the year.
On the demand side, government data showed that India’s crude oil imports had declined for the third consecutive month in August. This was due to refiners in the world’s third-largest importer conducting maintenance and reducing shipments from Russia.
In terms of supply, Exxon Mobil Corp announced plans to increase oil production by nearly 40,000 barrels per day in Nigeria, part of a new investment initiative in the country, according to a presidential spokesperson. This information was disclosed by Exxon’s president of global upstream operations on Tuesday.