Oil Prices Forecast: Fed Worries Shake WTI, Brent Futures Despite API Draw

Highlights

• Traders anxiously await the Fed’s interest rate decision amid strong U.S. dollar.
• Despite U.S. reserve draws, oil prices pull back from 10-month highs.
• U.S. crude stockpiles unexpectedly drop by 5.25 million barrels, per API data.

Oil Prices React Ahead of Federal Reserve Decision

Oil prices slid away from 10-month highs, despite notable draws in U.S. oil reserves and diminishing shale output. This move comes ahead of the anticipated interest rate decision from the U.S. Federal Reserve, amidst increased Treasury yields and a strengthening U.S. dollar.

At 05:30 GMT, international benchmark December Brent crude oil futures are trading $92.30, down $0.84 or -0.90% and U.S. benchmark WTI crude oil futures are at $88.38, down $0.79 or -0.89%.

Factors Impacting Oil Prices

Various dynamics are at play in the oil sector. The Fed’s forthcoming decision has traders poised, as it could significantly influence the direction of the U.S. economy. Speculations abound regarding the peak rates and the subsequent effects on energy consumption.

Wall Street is closely monitoring the situation, hoping the Federal Reserve will not inadvertently hamstring the economy. While the crude demand outlook could soften, the oil market’s supply deficit is expected to persist throughout the colder months.

Anticipation Surrounding Central Banks

Central bank interest rate announcements are in the spotlight this week. All eyes are on the Federal Reserve’s Wednesday decision. While it’s generally expected that interest rates will remain stable, the uncertainty lies in the future policy trajectory.

Supply and Demand Dynamics

The oil market received a surprise with the revelation that U.S. crude stockpiles fell by approximately 5.25 million barrels last week, according to the American Petroleum Institute (API), surpassing the 2.2 million-barrel decline expected by analysts.

Sluggish U.S. shale production, combined with extended production restrictions from Saudi Arabia and Russia, amplifies concerns over tight oil supply. Russia is contemplating imposing a substantially increased export duty on oil products to address fuel shortages.

Meanwhile, U.S. shale oil production is anticipated to dip to its lowest since May 2023. Notably, Exxon Mobil Corp has pledged to amplify oil output in Nigeria, signaling a fresh investment wave.

Short-Term Forecast

Despite recent fluctuations, projections of Brent and WTI oil prices hitting $100 per barrel later in the year persist. A bullish sentiment prevails given the ongoing tightness in the oil market. Concurrently, India’s oil imports have decreased, influenced by maintenance activities and reduced imports from Russia.

In conclusion, while the short-term landscape may witness adjustments, a supply-deficient winter and consistent global demand suggest sustained upward pressure on oil prices.

Technical Analysis

The current 4-hour price of 89.82 is slightly below the previous 4-hour price of 90.16. Notably, the price is trading both above the 200-4H moving average of 83.96 and the 50-4H moving average of 89.21, suggesting a bullish momentum in both the short and longer-term contexts. The 14-4H RSI reading of 46.46, while indicating a recent weakened momentum, is still not in the oversold territory.

In terms of support and resistance, the price is positioned near the significant resistance range of 90.10 to 93.74 and has some distance from the main support area between 84.89 to 83.81. Considering these indicators, the current market sentiment for Light Crude Oil Futures leans bullish, but with caution due to the proximity to major resistance. Additionally, taking out the 50-4H moving average with conviction could trigger an acceleration to the downside.