Oil prices dipped on Wednesday, with U.S. crude falling back from the pivotal $90-per-barrel threshold. This decline came as the Federal Reserve issued a warning of at least one more interest rate hike before the year’s end, tempering the optimism generated by a weekly petroleum inventory report that revealed drawdowns across various sectors.
The New York-traded West Texas Intermediate (WTI) crude for November delivery concluded at $89.66 per barrel, reflecting a decrease of 82 cents, or 0.9%, for the day. Earlier in the session, the U.S. crude benchmark had climbed to $91.05, following its rise to $92.43 on Tuesday, the highest level since November 2022.
Meanwhile, London-traded Brent settled at $93.53 a barrel, down 81 cents, or 0.9%. It had reached $94.70 earlier in the day, after hitting a 10-month high of $95.94 on Tuesday.
The Federal Reserve’s announcement played a significant role in these developments. While the central bank kept interest rates steady during its meeting on Wednesday, it also indicated that there would be at least one more rate hike before the year’s end. This decision aims to rein in inflation and return it to the Fed’s target of 2% annually.
The Fed’s hawkish stance, coupled with the possibility of higher interest rates, added pressure on oil prices. Analysts also emphasized that the approach of the $100-per-barrel mark for Brent crude made some traders nervous, which could manifest in momentum indicators.
The tightening of monetary policy by the Federal Reserve could have an impact on economic activity, potentially affecting crude oil demand. This development coincides with interest rate decisions expected from the Bank of England and the Bank of Japan this week.
In terms of supply and demand fundamentals, U.S. crude and fuel product inventories saw declines last week. Exports surged, and imports fell while refining activity decreased as the busy summer driving season came to a close. The U.S. crude inventory balance fell by 2.136 million barrels for the week ending September 15, a significant drop compared to expectations of a crude build of 0.25 million barrels.
Gasoline inventories experienced a decline of 0.831 million barrels, contrary to the expected gasoline build of 1.1 million barrels. Distillate stockpiles dropped by 2.867 million barrels, again defying expectations of a 1.05 million barrel gain. Analysts attributed these trends to robust crude exports and decreased imports, as well as a reduction in refining activity after the peak summer driving season ended.
Despite the fluctuations in the oil market, U.S. crude production remained at a three-year high of 12.9 million barrels, even as monthly output indicated declines in reports from U.S. oil drillers published by the Energy Information Administration.