In Asian trading on Wednesday, oil prices experienced a slight decline as traders exercised caution ahead of further guidance from the Federal Reserve. However, persistent indications of tight supplies kept prices near four-month highs.
Brent oil futures expiring in May dropped by 0.3% to $87.13 a barrel, while West Texas Intermediate crude futures fell by 0.3% to $82.45 a barrel. Despite the decline, both contracts remained close to their highest levels since November.
The recent surge in crude prices has been fueled by increasing signs of tighter global supplies, particularly following Ukrainian strikes on key Russian fuel refineries, leading to a shutdown in production capacity. Moreover, some members of the Organization of Petroleum Exporting Countries (OPEC) have signaled their intention to reduce production in the coming months, with the cartel maintaining its current pace of supply cuts until June.
On the demand side, U.S. crude demand is expected to rise as major refineries resume production after an extended break. Chinese fuel demand has also shown signs of improvement during the Lunar New Year holiday, although the rate of growth in China’s oil imports has slowed.
In a surprising turn, data from the American Petroleum Institute (API) revealed a 1.5 million barrel decrease in U.S. crude inventories for the week ending March 22, contrary to expectations of a small build. This potentially marks a second consecutive week of draws in U.S. inventories, coinciding with increased refinery activity. The decline in gasoline inventories further indicates an uptick in fuel demand after a winter lull.
The API data typically foreshadows similar results from official inventory data, which is scheduled for release later on Wednesday. A sustained decline in U.S. inventories reinforces expectations of tighter global supplies, particularly amid escalating gas prices in the world’s largest fuel consumer.
Oil markets are now awaiting the conclusion of the Federal Reserve meeting, where interest rates are widely expected to remain unchanged. However, any signals regarding potential interest rate cuts will be closely monitored, especially in light of hotter-than-expected inflation readings in recent months. Additionally, upcoming purchasing managers index (PMI) readings are expected to provide further insights into the state of the global economy.