Brent sheds previous gains on rate hike fears

The front-month ICE Brent contract has lost $2.25/bbl on the day, to trade at $92.90/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

Brent futures gained some support after the American Petroleum Institute (API) reported a bigger-than-expected decline in the US commercial crude inventories in the week ended 15 September.

US crude stocks fell by 5.25 million bbls, while analysts expected a fall of 2.67 million bbls, reported Trading Economics citing API data from its Weekly Statistical Bulletin that tracks crude stock builds in the US.

This week’s data “marked the fifth week of declines in the US Crude Oil Inventories in the last six weeks,” said Trading Economics.

Moreover, the Russian government is planning to impose an export duty of $250/mt on all oil products starting 1 October 2023 until 1 June 2024 as a measure to combat fuel supply shortage in the country, Reuters reported citing sources. This move by Russia could push Brent futures higher from current levels in the fourth quarter of 2023.

Downward pressure:

Brent futures lost previous day’s gains as the oil investors focused on the outcomes of the ongoing US Federal Reserve’s (Fed) Federal Open Market Committee (FOMC) meeting.

Oil investors are awaiting the US Fed’s interest rate decision, which could have a direct effect on global oil demand.

"The oil rally is taking a little break as every trader awaits a pivotal Fed decision that might tilt the scales of whether the US economy has a soft or hard landing," said OANDA’s senior market analyst Ed Moya.

Another cycle of rate hikes in the US would make dollar-denominated commodities like oil costlier for non-dollar holders. Higher interest rates discourage borrowing and spending, which leads to a decline in economic activity and fuel demand.

By Aparupa Mazumder

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