Oil falls ahead of Fed rate policy announcement

By Yuka Obayashi and Emily Chow

TOKYO (Reuters) – Oil prices retreated further from 10-month highs on Wednesday ahead of the U.S. Federal Reserve’s interest rate decision, with investors uncertain when peak rates will be hit and how much of an impact it will have on energy demand.

Prices fell despite a bigger-than-expected draw in U.S. oil stockpiles and weak U.S. shale output that indicated tight crude supply for the rest of 2023.

Global benchmark futures fell slightly over $1 to $93.33 a barrel, and were last down 80 cents, or 0.8%, at $93.54 a barrel by 0310 GMT. Brent hit $95.96 on Tuesday, its highest since November.

U.S. West Texas Intermediate crude futures shed 0.8%, or 75 cents, to $90.45 a barrel, after climbing to a 10-month high of $93.74 a barrel the previous day. The October WTI contract expires on Wednesday and the more active November contract was down 70 cents, or 0.8%, to $89.78 a barrel.

“The oil rally is taking a little break as every trader awaits a pivotal Fed decision that might tilt the scales of whether the U.S. economy has a soft or hard landing,” said Edward Moya, senior market analyst at data and analytics firm OANDA.

Moya added that the oil market is still “very tight” and will remain so over the short-term.

“Unless Wall Street grows nervous the Fed will kill the economy, the crude demand outlook should (only) gradually soften, but the oil market will easily have a supply deficit throughout winter.”

Investors are awaiting a raft of central bank interest rate decisions this week, including one by the U.S. Federal Reserve on Wednesday, to assess the outlook for economic growth and fuel demand. The Fed is widely expected to keep interest rates on hold, but the focus will be on its policy path, which is unclear.

oil stockpiles fell last week by about 5.25 million barrels, according to market sources citing American Petroleum Institute figures on Tuesday. Analysts in a Reuters poll had expected a 2.2 million-barrel decline.

“A large drop in U.S. oil inventories and slow U.S. shale output have added to supply concerns coming from extended production curbs by Saudi Arabia and Russia,” said Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan (OTC:) Securities.

“There will be some short-term adjustments in oil prices because of the recent spike, but expectations of reaching $100 a barrel on both Brent and WTI later this year will remain unchanged,” he said.

Additionally, Russia’s government is considering imposing export duties on all types of oil products of $250 per metric ton – much higher than current fees – from Oct. 1 until June 2024 to tackle fuel shortages, sources told Reuters on Tuesday.

That move comes as U.S. oil output from top shale-producing regions is on track to fall to 9.393 million bpd in October, the lowest since May 2023, and after Saudi Arabia and Russia extended combined supply cuts of 1.3 million bpd to the end of the year.

On the demand side, India’s crude oil imports fell for a third month in a row in August, government data showed on Tuesday, as refiners in the world’s third biggest importer carried out maintenance and reduced shipments from Russia.

On supply, Exxon Mobil Corp (NYSE:) has pledged additional oil production of nearly 40,000 barrels per day in Nigeria in a new investment push in the country, a presidential spokesperson said on Tuesday, citing Exxon’s president of global upstream operations.

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