Oil News: Crude Futures Fall as Rising U.S. Inventories Dampen Market Sentiment

Crude Oil Futures Slip as U.S. Inventory Data Weighs on Prices

Light crude oil futures are trending lower on Wednesday, marking a potential end to the recent two-day rally. Tuesday’s rally topped at $70.69, just inside of a key retracement zone between $69.79 and $72.21. With a recent trading range of $64.04 to $70.69, a pullback into the $67.36 to $66.58 retracement zone appears likely as the market consolidates.

At 10:33 GMT, Light Crude Oil futures are trading $68.93, down $1.03 or -1.47%.

 

U.S. Inventory Build Pressures Oil Prices

The primary factor weighing on crude oil prices today is the report of rising U.S. crude and fuel inventories. The American Petroleum Institute (API) reported a 1.96 million barrel increase in U.S. crude stocks for the week ending September 13. This build in inventories contrasts with expectations and has dampened the bullish momentum in the market, which had been supported by geopolitical risks in the Middle East. Additional inventory increases in gasoline and distillates have added further pressure, signaling that fuel demand remains soft.

The Energy Information Administration (EIA) is set to release its own inventory data later in the day. Markets expect a small drawdown of 200,000 barrels after last week’s unexpected 800,000 barrel build. Should the EIA data align with the API report, this could add further bearish sentiment to crude oil prices.

Federal Reserve Decision Adds Uncertainty

Market participants are also eyeing the Federal Reserve’s interest rate decision, expected later today. The Fed is widely anticipated to cut interest rates for the first time in four years, with a 67% chance of a 50-basis point reduction. While rate cuts typically support commodity prices by weakening the dollar and lowering borrowing costs, uncertainty around the magnitude of the cut is keeping traders cautious.

The potential impact of the Fed’s decision on crude oil markets is mixed. A larger-than-expected rate cut could support prices by stimulating broader economic activity. However, a smaller cut or no cut at all could further pressure oil, especially given concerns about weak global demand and refinery margins.

Middle East Tensions Offer Support

Oil prices have found some support from escalating tensions in the Middle East. Reports that Israel attacked Hezbollah positions in Lebanon with explosive-laden drones have raised fears of supply disruptions. Hezbollah’s promise to retaliate against Israel adds to the uncertainty, which could limit the downside in oil markets. However, these geopolitical risks have been insufficient to offset the bearish impact of rising U.S. inventories.

Market Forecast: Bearish Outlook

In the near term, crude oil prices are likely to remain under pressure. The build in U.S. inventories, coupled with weak demand signals from refining margins, suggests that any upside will be limited. Traders will be watching closely for the EIA report and the Fed’s decision later today. If U.S. inventories continue to rise and the Fed delivers a smaller-than-expected rate cut, we could see prices retreat into the $67.36 to $66.58 zone. Therefore, the outlook for crude oil remains bearish, with potential further downside in the coming days.