Crude oil slips ahead of Fed minutes; concerns rise about U.S. fuel demand

(C) Reuters.

By Peter Nurse

Investing.com — Oil prices weakened Wednesday ahead of the release of the minutes from the last Federal Reserve meeting amid concerns about fuel demand in the world’s largest economy.

By 09:00 ET (14:00 GMT), U.S. crude futures traded 0.5% lower at $76.02 a barrel, while the Brent contract fell 0.6% to $82.58 a barrel.

The crude market has fallen for the third consecutive trading session as traders brace themselves for the minutes of the Fed’s last policy meeting amid worries the policymakers will continue their recent hawkish stance.

The market has become increasingly unsettled by fears that inflation is proving to be ‘stickier’ than expected, forcing the Fed to keep rates higher for longer. This would have a negative impact on economic activity and thus the demand for fuel in the largest consumer in the world.

That said, data releases showing sticky inflation, booming retail sales and a services sector back in expansion emerged after the Fed meeting in early February. And so, a speech from New York Fed chief John Williams could provide a more up-to-date steer on current thinking.

“Markets continue to come to terms with expectations of a more hawkish Fed, following a raft of economic data suggesting the Fed still has quite a bit of work to do,” said analysts at ING, in a note. “These headwinds, combined with a fairly comfortable oil balance, mean that the oil market will likely remain rangebound. However, we see the market breaking out of this range later in the year as the oil market significantly tightens.”

Still, losses haven’t been that severe, helped by increasing evidence of a robust recovery in China, the world’s largest importer of crude, following the end of the country’s severe mobility restrictions to combat COVID as well as tighter global supplies.

Russia is set to reduce its exports by 500,000 barrels a day next month, and the Organization of Petroleum Exporting Countries announced late last year that it would cut its output by 2 million barrels a day.

Additionally, crude oil loadings at the Caspian Pipeline Consortium terminal on the Black Sea Coast have reportedly been halted since Feb. 19 due to bad weather, and this suspension still appears to be in place.

“The longer the halt more likely that we see storage at the terminal full up, which would have an impact on Kazakh flows along the pipeline and ultimately output,” ING added.

Commodities are poised to rally in 2023 as China recovers, U.S. inflation proves to be benign, and Russian oil production contracts, according to Goldman Sachs.

As far as oil is concerned, “what we see right now is that the market is beginning to tighten back up,” Goldman added.

The American Petroleum Institute is scheduled to release its estimate of U.S. oil inventories for last week, a day later than usual owing to the public holiday on Monday. Last week’s release showed a hefty build of over 10M barrels.