Oil Prices Rebalance as Market Awaits US Fed Minutes

Oil Prices Rebalance as Market Awaits US Fed Minutes

Oil prices are mixed on midweek ahead of the release of December meeting minutes of the Fed’s Federal Open Market Committee (FOMC).

The oil market started the first trading day of 2024 on a softer note with ICE Brent settling almost 1.5% lower yesterday. Energy markets were unable to escape the broader pressure seen on risk assets with equity markets also weaker.

International benchmark crude Brent traded at $75.92 per barrel, representing a 0.03% gain from the closing price of $75.89 a barrel in the previous trading session on Tuesday.

The American benchmark West Texas Intermediate (WTI) traded at the same time at $70.32 per barrel, down 0.08% from Tuesday’s close of $70.38 per barrel.

The US dollar recorded a steep increase during the first trading day of the year on Tuesday ahead of key US economic data and the Federal Reserve’s (Fed) Federal Open Market Committee (FOMC) December meeting minutes due later in the day.

Markets are also awaiting data on the US November job openings and the Labor Turnover Survey. When the US dollar appreciates, it discourages the oil traders holding other currencies from buying more expensive crude oil.

The Fed last made a rate hike of 25 basis points on July 26, after raising interest rates by a total of 525 basis points in 11 meetings from March 2022 to July 2023 to fight record inflation, the highest level in more than 40 years seen last summer.

Investors are also eyeing US crude oil inventories data to provide direction on the demand trajectory in the US, the world’s largest oil-consuming country.

The American Petroleum Institute will issue forecasts of the newest data on the country’s crude oil stockpiles during the day, while the US Energy Information Administration will reveal official data on Thursday.

The decline in crude oil stocks indicates improved demand in the US, which should push prices higher, whereas expanding stockpiles tend to force prices down.

The weakness in oil comes despite a ratcheting up in tensions in the Middle East. Iran has sent a warship to the Red Sea after the US sunk several Houthi boats in the region, following a number of attacks on commercial ships by the Houthis.

In a note, ING Commodities strategists said while the geopolitical situation is a concern for the oil market, a fairly comfortable oil balance over the first half of 2024 does help to ease some of these worries.

OPEC+ will hold a Joint Ministerial Monitoring Committee meeting in early February, according to Bloomberg.  The group will be keen to discuss the state of the oil market, particularly given the price action seen following the announcement of deeper cuts last month from a handful of members.

ING commodities strategists said given the scale of cuts we are already seeing, it will be increasingly difficult for the group to cut more if needed over the course of 2024.

Already, the last few rounds of cuts have been driven by voluntary reductions from individual members rather than group-wide cuts – a sign that it is becoming more difficult to get all members on board to cut.

European gas prices have come under significant pressure, with TTF settling 5.5% lower yesterday and at its lowest levels since August. This weakness comes despite forecasts for colder weather later in the week. Arts Forum Enlightens Students on Innovative Digital Tools

Analysts said storage remains very comfortable with it a little more than 86% full, which is above the 83.5% seen at the same stage last year.

In the absence of any supply shocks or demand surge, it is looking likely that European storage will finish the 2023/24 heating season around 50% full, which suggests limited upside for prices.