Oil Price Fundamental Daily Forecast – Steady-to-Better Ahead of Fed, OPEC+ with EIA Data on Tap

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher as traders looked for direction ahead of a Federal Reserve interest rate decision and a meeting of OPEC and its allies. The U.S. government also reports on crude and fuel stockpiles at 15:30 GMT.

At 13:54 GMT, March WTI crude oil futures are trading $79.16, up $0.29 or +0.37% and April Brent crude oil is at $85.31, down $0.15 or -0.18%. On Tuesday, the United States Oil Fund ETF (USO) settled at $69.33, up $1.23 or +1.81%.

All Eyes on Federal Reserve

Crude oil traders are looking for the U.S. Federal Reserve to raise its benchmark interest rate by 25 basis points at 19:00 GMT on Wednesday. The move could put pressure on the U.S. Dollar, which could underpin demand for dollar-denominated oil.

However, a rally may not be that cut and dry since the rate hike has been telegraphed for weeks by Fed policymakers. Instead, the comments from Federal Reserve Chairman Jerome Powell after the initial announcement could set the tone into the close.

Powell is expected to come across as hawkish by emphasizing that inflation is still too high and that additional rate hikes may be necessary. Ahead of the Fed decisions, the market is looking for the central bank to end its rate hiking campaign in March, while some expect the Fed to extend its campaign into June.

The disparity between what the market expects and what the Fed wants to do could be the source of volatility later today.

A more hawkish Fed and higher interest rates could be bearish for crude since the moves are designed to slow down the economy and lead to a drop in demand.

OPEC Expected to Hold Policy Steady

OPEC and its allies including Russia are expected to stick with existing output targets at a virtual meeting scheduled for 1300 GMT.

OPEC’s oil output fell in January, as Iraqi exports dropped and Nigeria’s output did not recover, with the 10 OPEC members pumping 920,000 barrels per day (bpd) below their targeted volumes under the OPEC+ agreement, a Reuters survey found. The shortfall was bigger than the deficit of 780,000 bpd in December.

Short-Term Outlook

The government is expected to report on U.S. inventories at 15:30 GMT. The U.S. Energy Information Administration (EIA) data is expected to show a 1.0 million barrel draw in crude oil stockpiles.

The EIA report will follow data from the American Petroleum Institute industry group showed U.S. crude stocks rose about 6.3 million barrels, more than expected, in the week ended Jan. 27, according to market sources.