Crude oil price erased some of the previous session’s losses but remained under pressure after the higher-than-expected build in US oil inventories. The commodity’s movements remain rather subtle ahead of the Fed interest rate decision later on Wednesday. As at the time of writing, the benchmark for global oil – Brent futures – were up by 0.32% at $85.71. At the same time, WTI oil was up by 0.38% at $79.30.
The latest input regarding the crude oil supply/demand dynamics is the weekly API inventory report. According to the institute, stockpiles in US storage facilities rose by 6.330 million barrels in the week that ended on 27th January.
Since the beginning of 2023, there has been a steady build; raising concerns over the status of the commodity’s demand. Analysts had predicted a draw of 1.000 million barrels after a build of 3.378 million barrels in the previous week.
In recent weeks, heightened optimism over China’s reopening has been a major bullish driver of crude oil price. While Brent futures momentarily dropped below the crucial level of $80 per barrel in late December 2022 and the beginning of 2023, it remains a steady support zone. Similarly, WTI futures has continued to trade above $70 for over a year now despite the downtrend that shaped the market since June 2022.
However, as I highlighted in the past article, the market may just be too China-centric. Granted, the Asian country is the second largest consumer of crude oil after the US and the leading importer of the commodity worldwide. As such, the reopening of its economy following the stringent COVID-19 restrictions is expected to yield a significant surge in global oil demand.
Even so, it is important to acknowledge the probability of a recession in the rest of the world. Notably, the OPEC meeting slated for Wednesday will also impact the supply/demand dynamics and crude oil price by extension.
Fed interest rate decision
The Fed interest rate decision scheduled for release later on Wednesday is yet another highly anticipated catalyst of crude oil price. While analysts expect the central bank to ease on its interest rate hikes by approving a 25 basis points increase, the focus will be on its tone.
Signs that the bank will continue with its aggressive monetary policy may heighten recession concerns; thus weighing on crude oil price. Besides, in such an environment, the probable rallying of the US dollar would be a bearish driver of the financial asset.