API crude oil inventories unexpectedly increased, Fed rate decision and EIA crude oil inventories will bring clear direction to oil prices

2023-03-22 17:23:59

WTI oil prices rose 2.4% toward the close of the U.S. session on Tuesday, bouncing from a low of $66.96 to a high of $69.72, as investors regained some confidence in the economic outlook after a Credit Suisse bailout last weekend.

Market conditions were thin early on Wednesday, with WTI crude paring intraday losses to post its first loss in three days. Oil prices fell in early trade on rising crude inventories, a rebounding correction in the U.S. dollar and unfavorable industry news for prices. However, the dollar's failure to hold gains and cautious optimism appeared to help the energy benchmark, with prices now edging lower near $69.10 a barrel.

At the same time, the Federal Reserve will announce its interest rate decision on Wednesday, after a two-day meeting on interest rates began on Tuesday, and the market expects a 25 basis point rate hike at the end of the meeting. Swiss authorities helped calm fears of a widening banking crisis, with crude oil prices up 3.9 percent since the start of the week after falling 13 percent last week. Gold prices also rose as investors flocked to risk assets as regulators gave more assurances of support for the U.S. banking sector.

U.S. Treasury Secretary Janet Yellen said on Tuesday the government was prepared to intervene in a banking crisis and offer deposit guarantees to all small U.S. banks.

FDIC coverage likely expanded to cover all deposits, easing fears of further bank runs.

On the OPEC front, Russian Deputy Prime Minister Alexander Novak announced on Tuesday that Russia will maintain its planned oil production cuts of 500,000 barrels per day until the end of June.

He said this was a decision based on current market conditions. But tanker-tracking data showed little sign of a slowdown in the crude trade. Overall market sentiment remains bullish, with top traders saying oil fundamentals are getting stronger. There are also concerns that crude supply could be hit more than demand because of the banking crisis. The biggest risk to U.S. shale production comes from tightening credit conditions for U.S. regional banks.

Analysts at TANZ Bank said the market was further bolstered by problems with crude supply.

On Tuesday, the American Petroleum Institute (API), a private oil inventory data provider, showed that oil inventories rose by 3.262 million in the week ended March 17, compared with a previous increase of 1.155 million.

In addition to rising inventories, a corrective rebound in the U.S. dollar, supported by an initial rebound in U.S. Treasury yields, also helped WTI crude oil bears end their two-session winning streak.

In addition, news from Reuters indicated that optimism in the U.S. refining industry was also tempting crude oil bears. "The U.S. refining industry is expected to maintain its competitive advantage in exporting fuel to Latin America, even as Brazil has started importing more Russian diesel," a U.S. refining official said, Reuters reported.

Beyond that, traders are unlikely to over-build positions in one way or another ahead of the Federal Reserve's much-anticipated rate decision. The Federal Reserve is expected to continue its efforts to slow the U.S. economy in an effort to bring inflation down despite a banking crisis that has raised fears it could trigger a recession that will cripple demand for crude.

The Fed is expected to raise interest rates and raise the federal funds rate to 4.75%-5.00%. The Fed will also release the dot plot, and the post-meeting press conference will likely emphasize that the Fed is not done with tightening policy.

Analysts at TD Securities believe officials are likely to point to heightened uncertainty in the economic environment.

U.S. Treasuries will be volatile on news from the Fed about future rate hikes and the dot plot. Any hint that the Fed has stopped raising interest rates due to stability concerns could trigger huge market volatility. "Fed messaging and dot plots will be critical. Our base case is for a hawkish Fed, creating persistent risks of short-term rate volatility."

Overall, little volatility in the market ahead of the Fed decision challenged crude oil traders. At the same time, attention should be paid to the U.S. EIA crude oil inventory report released on Wednesday, which is expected to decrease by 1.448 million barrels, and the previous value increased by 1.55 million barrels.

CME's latest crude oil trading data

According to preliminary data on the crude oil futures market released by CME Group, open interest resumed its upward trend, rising by nearly 5,000 contracts on Tuesday, breaking away from the previous downward trend. Instead, volume shrank for a second straight session, shedding about 63,500 contracts on the day.

On Tuesday, WTI prices rose significantly. The move favors a continuation of the rally in the short term amid rising open interest. Still, the next hurdle for the commodity is the key $70.00 level.


WTI Oil Price Technical Analysis

The December 2022 low of $70.30 and the descending resistance line of $71.40 two weeks ago will limit gains.


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