Oil Prices Trade Lower As Market Shrugs Off Declined Stockpiles, Prioritise Interest Rate Announcement

Summary:
• US Crude inventories declined in the week ending March 15th, as reported by API and EIA, but traders have opted to wait for Fed announcement.

Global crude oil prices stepped down from over four-month highs on Wednesday, as traders eased buying the commodity in anticipation of US interest rate announcement. Brent crude was at -1.12% and trading at $86.18 per barrel, while WTI went for $81.48, and down by 1.50% at the time of writing. The commodity rose on Tuesday to its highest level since the first week of November 2023, as concerns rose over damages to Russian oil infrastructure.

Crude oil prices were propelled by supply-side concerns on Tuesday, as it became increasingly evident that Ukraine’s attacks on Russian oil infrastructure could impact supply. Ukraine conducted drone attacks on Russian oil Refineries two days ago, reducing production by as much as 350,000 barrels per day. India’ the world’s third-largest imported of oil, got more than 30% of its oil from Russia in 2023.

Meanwhile, America Petroleum Institute reported a more-than-expected drop in US crude inventories for the second week in a row. According to the release on Tuesday, US producers saw their stockpiles decline by 1.519 million barrels in the week ending March 15, against the forecast estimate of a rise by 77k barrels. This has been backed up by official government figures released by the EIA on Wednesday, which showed a decline of 1.952 million barrels, lower than the expected figure of -0.9 million barrels.

Beyond the oil stockpiles, the US interest rate announcement will impact the price of oil. The dollar-denominated commodity typically sees increased demand when the US dollar weakens and vice versa. While the market expects the current interest rates to remain unchanged until June, the recent mixed performance by the US economy could lead FOMC members to pull a surprise. 

Furthermore, crude oil continues to get support from the recent positive demand outlook by the International Energy Agency (EIA) and OPEC+.

Technical analysis

WTI crude oil price has its pivot at 81.82, and the RSI indicator currently signals control by the sellers below that mark.  This could break the 80.81 support in extension and potentially test 80.31. Conversely, if the commodity heads above 81.82, the momentum will favour the bulls. That could see them breach the resistance at 82.52, and potentially test 83.16 in extension.