Brent plunges ahead of Fed meeting outcome

The front-month ICE Brent contract lost $3.63/bbl on the day, to trade at $72.61/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

Brent futures gained some support after the American Petroleum Institute (API) reported a 2.35 million bbls decline in US commercial crude oil inventories in the week ended 8 December.

Recent missile strikes and drone attacks on vessels bound for Israel have increased the risk of shipping oil tankers through the Red Sea. Brent’s price found some support amid concerns about shipping oil around the region.

Earlier this week, the Houthi rebel group in Yemen warned they would attack ships heading to Israeli ports in retaliation for the country's actions in Gaza.

Downward pressure:

Brent futures fell sharply after the US Consumer Price Index (CPI) report disappointed global markets, wiping out the previous day's gains. The oil market faces challenges due to higher-than-expected US inflation numbers in November, reported Reuters.

The latest US CPI figures reinforced speculations that the US Federal Reserve (Fed) could increase interest rates to control inflation, after it concludes the two-day Federal Open Market Committee (FOMC) meeting today, analysts said.

The US CPI report “indicated that inflation remained persistent in November despite a widespread decrease in gasoline and energy prices,” said SPI Asset Management’s managing partner Stephen Innes. “This development diminishes the outlook for the Federal Reserve [Fed] to initiate interest rate cuts as aggressively as market pricing, which raises the odds of a Fed-induced recession,” he further added.

Higher interest rates potentially impact consumer spending, especially on commodities like oil, which in turn could lower demand growth.

By Aparupa Mazumder

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