Blog post

Oil pars gain in remote trading ahead of Fed decision

Content of the article

(Bloomberg) – Oil was trading near $88 a barrel ahead of a Federal Reserve interest rate decision and after an industry report indicated another sharp drop in crude inventories at United States.

Content of the article

West Texas Intermediate futures pared an earlier gain in the trade little changed with prices stuck in a $12 band over the past month. The American Petroleum Institute reported that crude inventories fell by 6.53 million barrels last week, according to people familiar with the data.

Content of the article

The market will be watching closely for a Federal Reserve interest rate decision later Wednesday to gauge demand prospects. The central bank is expected to raise rates by 75 basis points for the fourth consecutive time. As traders search for clues on the pace of economic growth, container shipping giant Maersk said Europe was close to a recession.

While crude has rebounded this quarter following the OPEC+ alliance’s decision to cut production drastically from November, in recent weeks the market has struggled to orient itself and trading volumes have been lackluster. The producer group’s cuts will be followed by European Union sanctions on Russian oil, further clouding the supply outlook.

Content of the article

“Crude is trading near the top of its range, but the lack of visibility regarding near-term direction continues to keep the market mostly range-bound,” said Ole Hansen, head of commodities strategy at Saxo Bank. “Demand is torn between the prospect of Chinese demand picking up once Covid restrictions lift and fears that global economic activity will continue to weaken in the months ahead.”

The Organization of the Petroleum Exporting Countries kept output stable last month after earlier agreeing to a token cut of 100,000 barrels a day. But since many members were already behind their quotas, few needed to make an actual cut, and the total production was well below the group’s goal.

Click here to read Bloomberg’s daily Europe Energy Crunch blog

Oil options markets have become increasingly bullish in recent weeks. Premiums for bullish call options over bearish put options hit their highest level since June, according to data compiled by Bloomberg.

Elements, Bloomberg’s daily energy and commodities newsletter, is now available. Register here.