Oil futures: Crude eases from yearly highs ahead of FOMC meeting
Quantum Commodity Intelligence – Crude oil futures Wednesday were slightly lower as prices eased from the previous session's yearly highs when Brent came within a whisker of $96/b, as markets focussed on the broader macroeconomic outlook.
Front-month Nov23 ICE Brent futures were trading at $94.16/b (1725 GMT), compared to the day's range of $92.76-$94.54/b and Tuesday's settle of $94.34/b.
At the same time Nov23 NYMEX WTI was trading $90.44/b, versus Tuesday's settle of $90.48/b, while the less-liquid Oct23 contract was trading at $91.35/b heading into the expiry.
Despite the retreat in crude prices, analysts see little change in fundamentals with the expected supply/demand deficit during Q4 keeping talk of a $100/b handle alive.
"Given the constructive fundamentals and more positive sentiment, we could see ICE Brent breaking above US$100/b in the not-too-distant future," said ING Bank in a client note.
"However, such a move would likely be unsustainable, leading to growing political pressure, whilst the Saudis and the broader OPEC group will probably not want to push the market too high, given the demand destruction risks this could create," added the report.
But focus switched midweek to the Federal Reserve meeting as surging energy costs raised expectations of higher-for-longer interest rates needed to combat inflation.
"Today's main event will be the FOMC meeting where we expect no changes in policy rate, in line with consensus. The focus will instead be on the updated dot plot, i.e. how the policymakers see the future rate path," said Danske Bank in a research note.
Prices staged a modest recovery after latest EIA data showed US commercial crude stocks fell over by over 2 million barrels last week, while gasoline and distillates were also both down by more than 2 million barrels.
Investors had shrugged off latest data from the American Petroleum Institute, which revealed a 5.25-million-barrel drop in crude stocks against analysts' expectations for a smaller draw of 2.5-3 million barrels. The report also showed gasoline increased by 730,000 barrels last week, while distillate stocks eased by around 250,000 barrels.
China
Markets were left disappointed after China maintained the one- and five-year loan prime rates as officials evaluated the economic consequences of existing stimulus measures.
"Even if Chinese authorities were to unveil large-scale rate cuts, it would likely prove insufficient to counteract the multifaceted challenges confronting the Chinese economy," said Stephen Innes of SPI Asset Management, referencing mounting debt levels and the persistent property market crisis.
Meanwhile, geopolitical tensions ratcheted up in the South Caucasus after Azerbaijan launched "anti-terror" operations in Nagorno-Karabakh, saying it will not stop until ethnic-Armenian separatists surrender.
Although the region does not produce oil and gas, it is close to a major energy transport hub that includes the Baku-Tbilisi-Ceyhan (BTC) oil pipeline and South Caucasus Gas Pipeline, which have been targeted in past conflicts.
