Oil prices experienced minimal fluctuations on Wednesday as traders refrained from making large investments while awaiting further indications regarding interest rates. Meanwhile, industry data concerning U.S. inventories provided mixed signals.
Crude prices have largely remained within a tight range this week after experiencing gains the previous week, driven by the potential for additional U.S. sanctions on Russian oil supplies. However, this upward momentum has been dampened by renewed worries about decreasing demand in China and concerns about a possible supply surplus in the year ahead.
The oil markets also faced pressure from a stronger dollar, as traders leaned toward the greenback in anticipation of the Federal Reserve’s meeting conclusion on Wednesday.
Brent oil futures for February delivery held steady at $73.20 a barrel, while West Texas Intermediate crude futures remained unchanged at $69.66 a barrel as of 20:11 ET (01:11 GMT).
U.S. crude inventories decline, but product stockpiles increase – API
Data released by the American Petroleum Institute on Tuesday evening revealed that U.S. oil inventories decreased by 4.7 million barrels in the week ending December 13, surpassing expectations of a 1.9 million barrel draw. However, gasoline inventories rose by 2.4 million barrels, and distillate stocks increased by 700,000 barrels.
This suggests that while overall U.S. supplies are tightening, fuel demand may be weakening due to reduced travel during the winter months. This trend is expected to persist for at least the next two months.
The recent draw follows two consecutive weeks of significant inventory builds. Historically, API data tends to foreshadow similar findings from government inventory reports, which are scheduled to be released later on Wednesday.
Read more: Crude oil prices fall ahead of Fed meeting amid weak Chinese economic data
Anticipation surrounding the Federal Reserve’s rate decision
This week’s focus has been primarily on the Federal Reserve’s meeting, which is set to conclude later on Wednesday. Although the central bank is widely expected to reduce interest rates by 25 basis points, traders are keenly observing for any hints that the Fed might adopt a more gradual approach to rate cuts in the coming months. Recent data has indicated persistent inflation, robust consumer spending, and a strong labor market.
Such expectations have boosted the dollar, which in turn has weighed on oil prices. Anticipated higher rates next year could also hinder economic growth, potentially curbing oil demand. However, the resilience of the U.S. economy may mitigate this trend.
Concerns about slowing demand were heightened following a series of mixed economic reports from China, the top crude importer. Expectations for new stimulus measures in the country have largely fallen short.
Oil prices decline amid weak Chinese economic data
On Tuesday, oil prices dipped slightly following disappointing economic data from China that affected market sentiment. Traders are also feeling uneasy with the upcoming Federal Reserve policy meeting.
As of 20:41 ET (01:42 GMT), Brent Oil Futures fell by 0.2 percent to settle at $73.81 per barrel, while WTI Crude Oil Futures decreased by 0.1 percent to $70.20 per barrel. Both February contracts experienced declines on Monday, as concerns over sluggish demand were exacerbated by China’s weak economic performance.
Weak Chinese data clouds demand outlook
China released key economic indicators for November on Monday, presenting a mixed picture. Industrial output met expectations with a slight increase, suggesting some improvement in that sector. However, retail sales growth decelerated significantly, falling short of forecasts and highlighting ongoing weaknesses in consumer spending. Additionally, home prices dropped by 5.7 percent year-over-year in November, following a 5.9 percent decline in October, indicating persistent challenges in the real estate market.
These developments raise red flags for the oil market, particularly since China is the world’s largest crude importer. The slowdown in retail sales signals fragile domestic demand, which could weaken energy consumption. Furthermore, the modest rise in industrial output indicates that manufacturing activities are not robust enough to significantly boost oil demand. Last week, Beijing also offered tepid signals regarding new stimulus measures.
Markets await Fed rate announcement with caution
Investors remain cautious ahead of this week’s Fed meeting, where a rate cut of 25 basis points is widely expected, along with indications of a slower reduction pace in 2025. Generally, lower interest rates are viewed as beneficial for economic growth, potentially enhancing oil demand. However, uncertainty regarding the Fed’s future policy direction has created hesitancy in the markets, contributing to the current softness in oil prices. Following strong gains last week, oil prices have faced downward pressure this week, with the potential tightening of oil markets due to stricter U.S. sanctions on Russia, alongside expectations of new stimulus measures from China, having previously supported oil prices.
