Oil Price Forecast / Update: Fed Rate Hike Fears Drag Down WTI Oil Prices Ahead of EIA Report

Highlights

• WTI Oil prices fall due to concerns over Fed rate hikes
• U.S. crude oil inventories and SPR inventory continue to decline
• China’s economy grows, but refining margins plummet

Overview

On Wednesday, the U.S. benchmark WIT crude oil faced downward pressure due to concerns in the market regarding possible interest rate hikes by the U.S. Federal Reserve. These hikes could result in reduced economic growth and lower demand for oil, which offset the positive effects of declining U.S. inventories and robust Chinese economic data.

At 13:00 GMT, WTI Oil is trading $79.51, down $1.47 or -1.82%.

Uncertainty Looms as Fed Officials Hint at Possible Rate Hike

There is uncertainty about the future policy decisions of the U.S. Federal Reserve, despite easing inflationary pressures. Fed officials, including Atlanta Fed President Raphael Bostic and St. Louis Federal Reserve President James Bullard, suggest that interest rates may continue to rise. The markets predict an 86% likelihood of a 25 basis point rate hike at the May policy meeting.

U.S. Crude Oil Inventories Decline – API

The American Petroleum Institute (API) reported a significant decrease in crude oil inventories in the U.S. for the week ending April 14, exceeding analysts’ expectations. Inventories of gasoline and distillate also fell, with the Strategic Petroleum Reserve (SPR) inventory dropping for the third consecutive week. The total number of crude oil barrels gained so far this year is more than 44 million barrels.

China’s Economy Shows Strong Growth Amidst Weakening Global Demand

China’s economy experienced a faster-than-expected growth in the first quarter, accompanied by record-high oil refinery throughput in March. However, weakening global demand is evident in plummeting refining margins for diesel and jet fuel. The current weak demand and increasing product supplies have resulted in feeble distillates and gasoline cracks from Asia to Europe. Additionally, India and China have been acquiring the majority of Russian oil at prices above the Western price cap, adding more pressure on oil benchmarks.

EIA Expected to Report 400K Barrel Draw

The official inventory report by the Energy Information Administration, the statistical arm of the U.S. Department of Energy, is due to be released at 1430 GMT on Wednesday. It is expected to show a draw of about 400,000 barrels.

Technical Analysis

From a daily technical viewpoint, WTI Oil is trading above the pivot at $73.89, but heading lower after failing to overcome resistance.  Overtaking $92.52 will be a sign of strength that could extend the rally into $89.48.  Meanwhile, a break under $82.52 will indicate the presence of sellers. This could create the downside momentum needed to challenge the pivot at $73.89.

For a look at all of today’s economic events, check out our economic calendar.