Oil prices saw a slight decline on Wednesday as traders exercised caution while awaiting further indications from the Federal Reserve. However, prices remained close to four-month highs due to ongoing signs of limited supplies. The May expiration of Brent oil futures dropped by 0.3 percent to $87.13 per barrel, while West Texas Intermediate (WTI) crude futures fell by 0.3 percent percent to $82.45 per barrel at 20:37 ET (00:37 GMT). Both contracts stayed near their highest levels since November.
Read more: Oil prices extend gains ahead of anticipated Fed meeting, rising supply risks
Recent market sessions witnessed a significant rally in crude prices, driven by increasing indications of tighter global supplies. This trend was further amplified by strikes on crucial Russian fuel refineries, resulting in production capacity shutdowns. Moreover, certain members of the Organization of the Petroleum Exporting Countries (OPEC) signaled their intentions to reduce production in the upcoming months. OPEC also maintained its current pace of supply cuts until June.
In terms of demand, the resumption of production by major U.S. refineries after an extended break is expected to lead to an increase in U.S. crude demand. Chinese fuel demand also displayed signs of improvement during the Lunar New Year holiday, although the growth rate of China’s oil imports slowed down.
Inventory draws and refinery activity
Data from the American Petroleum Institute revealed a decrease of 1.5 million barrels in U.S. crude inventories during the week ending March 22, contrary to expectations of a small increase. This potential second consecutive week of inventory draws coincided with heightened refinery activity. Additionally, a sustained decline in gasoline inventories indicated improving fuel demand following a period of reduced activity during winter.
The American Petroleum Institute’s data typically foreshadows similar findings from official inventory data, which are scheduled to be released later on Wednesday. The continuous decline in U.S. inventories contributed to expectations of tighter global supplies, particularly in light of increasing gas prices in the world’s largest fuel consumer.
Anticipation of maintained interest rates
Oil markets were currently focused on the outcome of the Federal Reserve meeting later in the day. It is widely anticipated that the central bank will maintain interest rates at their current level. However, any indications of potential interest rate cuts will be closely monitored, as traders remain concerned about a reduction in rate cut expectations following higher-than-anticipated inflation readings over the past three months. In addition to the Federal Reserve, several influential Purchasing Managers’ Index (PMI) readings are scheduled in the coming days, which are expected to provide further insights into the state of the global economy.
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